A Few Thoughts on USDA's Corn Yield Number
Jun 06, 2012
I am thinking the USDA report could hold some bullish cards, but it is tough taking long-side risk with so much fear brewing in the outside markets. The thoughts are both soybeans and wheat will see some bullish adjustments made to the balance sheets. Corn is a little more difficult to predict as there is fear that more ample and cheaper supplies out of South America are going to start weighing more heavily on export totals. Several in the trade thinking US exports could be lowered just a touch. On the flip side, some thinking the 166 bushel yield estimate could lower production numbers as well. I personally don't see the USDA lowering the yield numbers just yet, so I am having a tough time seeing a lot of bullish potential out of the corn numbers, but I doubt there will be much bearish data coming from the report either. Net-net I am thinking bullish soybeans and wheat...neutral corn.
I have heard some interesting Corn numbers floating around the trade as of late that I wanted to share...thought you might find them interesting. It just shows you how important "weather" will be in determining price in the weeks ahead:
- 165 plus yield will end up producing a 2.0 billion plus carry, therefore fall prices could eventually trade down to $3.75 or even lower if the outside markets continue to suffer.
- 163 yield produces around a 1.8 to 1.9 billion carry and a fall price could therefore fall to around $3.90 per bushel.
- 159 yield produces around a 1.6 billion carry and a fall price of around $4.30
- 155 yield produces around a 1.3 billion carry and a fall price of around $5.00
- 151 yield produces around a 1.0 billion carry and a fall price of around $6.25
- 150 yield or lower and prices have a chance of jumping beyond $7.00
Corn bulls continue to have a hard time digesting news that the US crop is rated 72% "Good-to-Excellent." In addition they had to swallow news out of South America that Brazil's corn crop is pushing higher and higher, now estimated at 67.8 million metric tons. If you recall just a few months back, the USDA had estimated Brazil's corn crop at just 62 million. The word is the "second-crop" corn has just been unbelievable and continues to show better yields. First crop corn in Brazil is now thought to be around 34.9MMT, second crop corn will equal around 32.9MMT's. Total 67.8MMTs compared to soybeans being estimated at just 66.3MMT's. I doubt this trend will continue, (more corn than soy) as I mentioned yesterday higher Nitrogen cost should put a lid on a major jump in corn acreage. Also keep in mind late seasonal rains were very helpful and extremely rare, locals are doubtful the weather for second crop corn will be this good again anytime soon. The fact of the matter is go gin to end up with a large surplus of corn. I realize there maybe some logistical issues in getting the corn out of South America, but with price drastically cheaper than US supplies, there is more and more fear we could start losing some additional export business in the weeks ahead. I am also hearing more rumors that China is close to inking some type of corn deal with Brazil. My sources are telling me that the Brazilian government just recently presented the Chinese Ag Minister with some type of document describing plant parameters and protocols. Obviously once approved the Chinese will start to entertain more thoughts in regards to Brazilian corn.
Soybeans are just the opposite, as the trade is expecting a major increase in overall exports the next few months. In fact analyst over at Oil World are now thinking US soybean exports during the month of Sept 2012 through Feb 2013 could see a jump by some 40% or a total of around 33 million tons.
Weather traders are continuing to monitor the dry conditions in both India and China as the "monsoon" rains are fashionably late for the party. From what I am hearing, only about 20% of the Indian crop is being adversely affected by the delayed rains at this time, but moving forward that number could quickly escalate to 80% of the crop being adversely affected if the rains do not show up in a much bigger way. Here at home, the forecasts are a shade warmer and showing a little less rainfall than previously anticipated. Anyway you want to slice it I still do not see it being enough to solve the deficiencies with top-soil and or sub-soil moisture levels for the extremely dry regions, but on the other side I don't see the near-term temps being hot enough to do a ton of damage. Net-net the weather here in the US is currently a non-event, therefore not really giving us a ton of support in my opinion. Moving forward however I have a feeling that could change. I wrote a little longer-term perspective in today's story section down below. It will give you a better idea about why I am not overly bearish this crop just yet.