Are We Setting Corn Up for Failure?
Apr 09, 2013
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As I look at the average trade guess for corn ending stocks going into the April USDA supply/demand report I have to wonder if we are setting the corn market up for another bearish report. Two weeks ago the USDA gave us a momentous shock with quarterly grain stocks coming in 400 million bushels over expectations. This means either we grew much more corn then we thought last summer, demand is much less then we were expecting, imports are much stronger then expected, or all of the above.
Now, going into tomorrows monthly WASDE report the average trade guess for old crop corn ending stocks is 812 million bushels. This would be an increase of 180 million bushels from last months USDA estimate. This is no doubt that this is a huge month over month increase, but shouldn't it be even more? Where does the other 220 million bushels that we underestimated on the stocks report go?
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Since the stocks report I have been saying that the full 400 million bushels will not find its way onto the ending stocks number. With the sharp drop in prices that followed it would seem logical that the USDA would look at this as awakening some demand. Based on price action the market seems to have priced a vast majority of the 400 million bushels going back onto the balance sheet. But now we are looking at an average trade guess of 812 million bushels. To me this is an average analyst guess, not an average trade guess. I think the market could have factored in a 950 million bushel cary over number.
More demand certainly seems possible. However, corn used for ethanol continues to fall behind the current USDA estimate by 2-4 million bushels a week. Corn exports are continuously terrible historically. And, if there was huge feed demand out there it should have been reflected on the stocks report. The bottom line is that the USDA sees more corn out there, a lot more.
There was likely better corn production then anticipated last summer, despite the drought. Imports were also probably stronger then expected over the last few months. These changes alone could give us a number higher then the "average trade guess". I was hoping the trade guess was in the low 900s so that there was a chance for a bullish report, but with these guesses I am worried we are set up for failure.
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May Corn Daily chart:
May Soybeans Daily chart:
May Wheat Daily chart:
All this means that speculators should be looking for opportunities and producers need to look to lock up some prices while we have corn near $7.00 and soybeans near $14.00. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
Ted Seifried (312) 277-0113 or email@example.com
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