Grain Outlook: A Tale of Two Crops
May 16, 2011
Last week’s break in the commodities was more to do with the weak tone of the outside markets than corn fundamentals. We would suggest the current concern regarding demand bearishness has crested for now and the focus is now turning back to supply or planted acres. This year it looks like it is going to be a tale of two crops. The western crop is starting off great while the eastern crop in many cases is not even in the ground.
Looking forward I expect the western states will have to deal with the heat and drought conditions in Texas moving north while the east will be simply worried about timely rains. The current USDA estimate of 158.7, to our way of thinking is going to be close to the high end and more than likely could fade a little if any dry weather stress develops in July and August.
Over the next two weeks, we will be focused on how many corn acres are getting planted and how many could potentially be switched from corn to beans. I’m in the camp that the 92.2 million acres is high and will drop closer to 91 million or lower by the June Acreage report. This would imply the bulls will have the upper hand in the market until late June. If we don’t have some really bad heat to move into the Midwest, we should see a June high.
If these fundamental assumptions are accepted, more than likely one will end up with the belief that the market can be positive over the next 30 or 45 days but it can’t be explosive unless a major dry weather event is seen or crude oil starts to make new highs. Because of these basic assumptions, I have to say new crop Dec corn should find it very difficult making it back above the $6.70 level.
Just a side note: Many advisory services are suggesting it is the time to be watching basis bids for both old and new crop. We are hearing from farmers that the basis bids are being increased significantly. We would expect the best basis bid to be present between now and mid July. So if you have sold the cash but left open the basis I would be getting ready to lock up the basis level by early July.
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