Thoughts From A Seasoned Grain Guru
Jul 14, 2011
I received a fantastic e-mail from one on my long time buddies. For years he was regarded by many as one of the largest grain spec's in the game. I value his opinions and insight, and always perk up when I hear him throw his hat in the ring and his two cents about the markets. I have tried to summarize his most recent thoughts about the current corn and wheat situation below. I hope this gives you some additional insight as to what a few of the big boys are thinking at this juncture.
First of all he believes the % of harvested corn acres could be 2mm acres to high.... simply assuming 1mm acres of that didn't even get planted at all...net/net he is looking at a reduction of around 3mm acres = 460mm corn.
Next, he believes China import numbers being estimated at just 2mmt for 11/12 is a joke, 100mm bushels plus to small and will need to be adjusted.
Next, he believes the heat could pull the national yield down to 155 (not 160 or higher like some are still predicting). A much more realistic 155 yield compared to a 158.6 as the USDA is projecting would basically reduce production by 320mmbu.
Therefore your ending balance would be affected as follows:
Currently the USDA is forecasting the 11/12 ending stocks +870 million
subtract 460 due to floods and unplanted acres (point #1 above).
subtract another 100 for understatement of Chinese imports (point #2 above).
subtract another 320 for the yield adjustment down to 155 (point #3 above).
All total this gives you additional reductions of 880 million bushels, or an ending stock number in the "red." We all know this is not possible, and will not be allowed. Therefore somewhere along the line demand must be cut or we must feed something else.
He further points out that we are now experiencing our longest run ever for Chicago wheat trading at a discount to corn, and questions if we may be entering a new paradigm, and a complete shift in values. He is not the only one kicking this idea around as I am now hearing more talk that Chicago wheat could continue to trade at a discount to corn through the remainder of the year.
In our conversation he also points out that Chicago wheat spreads have come in partly because of Central States stopping July wheat to move to empty storage facilities tucked between ethanol plants to hopefully earn storage income... Pointing out that if the VSR goes any wider, they will more than likely start moving Chicago wheat to Anchorage Alaska to store, hence we have gone far enough, particularly if the corn crop is short and storage is abundant. His thoughts are we might even bring it in a click or two, who knows...
In summary, he believes if the cards fall on the table just right, corn has the potential to be a complete run away train, and if it does it might just have enough steam in the engine to pull wheat right along with it. He is bullish the Dec 11 Corn against the July 12 Corn, but he is not yet bullish the Chicago wheat spreads...
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