Corn Bulls Excited about Yield Reductions in South America
Dec 05, 2012
Corn bulls are happy to see several analyst cutting yield estimates in both Brazil and Argentina. I concur with the Argentine cuts, but I urge you to be extremely careful buying into the rhetoric about a reduction in the Brazilian corn crop. We saw how this worked last season. A period of time in which Brazilian exporters have been moving a record amount of corn ever since their corp was harvested. Lets also not forget the fact they have been selling shipment after shipment to what has traditionally been US buyers. Just earlier this week reports were circulating that Taiwan bought South American corn for about $0.50 cents a bushel cheaper than US corn. There are also rumors circulating that both Japan and South Korea recently booked Brazilian corn for Jan deliveries. I realize eventually Brazil is going to be out of exportable corn supplies, or from a logistical standpoint they will be forced to start exporting soybeans and sugar and the corn will have to take a backseat. The question is how far behind our current export estimates will we fall before Brazil shuts it down and global end users start more aggressively coming our direction? Or will global end users simply try and go hand-to-mouth until South American new-crop bushels come online and available for shipment in March.
As for today there seems to be more of a temporary "risk-on" feel across the commodity markets following the Chinese comments that they will be staying with an easing fiscal policy that is "pro-growth." Keep in mind China has represented about 50% of the global growth the past few years. Without their engines roaring or thoughts they might take their pedal-off-the-medal so to speak, traders would quickly become more nervous and further reduce their risk-exposure. The recent comments, though just words, at least provide hope that China is going to try their best to stimulate more growth. There has been some concern the new leaders were going to dial things back to some degree. Like I said these are just words, but at least words the market wanted to hear. Producers should continue to monitor new-crop prices in search for opportunities to get a small portion of your 2013 crop booked. Specs should continue to reduce exposure in the markets as we move further and further towards thinning holiday trade. Small bull spreads in anticipation of logistical nightmares in South America or here at home still seem to make the most sense longer-term.
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