Chore time for me isn't what it used to be when I was growing up on our eastern Iowa farm, but taking care of two horses in the morning before I head in for work gives me a little time to think about the day ahead. Each morning, stop at this spot to get a feeling for the "tone of the day" - and some attitude about agriculture and the markets.
I was thinking…
... about the May Supply & Demand Report from USDA.
I know... that was almost a week ago, but it seems like the market is still trying to figure out exactly what it means for new-crop corn futures. USDA used the planted acreage estimate from the Prospective Plantings Report and a historical harvested acreage percentage. Then, instead of just going with a trendline yield, USDA trimmed a bit from the trendline to account for snail's-pace planting progress in the eastern Corn Belt.
The result was a corn crop basically even with year-ago. But... if the March corn planting intentions estimate was on the mark, actual corn plantings will end up less than 85 million. If USDA's May harvested acreage projection was even 1 million acres too high, that could trim another 155 million bu. from total 2009-10 supply. Holding USDA's May usage projections steady, that would drop carryover to about 1 billion bushels. Of course, we can't assume steady use if the crop is 155 million bu. below the May projection... price would have to rise to slow the usage pace. Most likely, the market would pry some additional use from the Feed & Residual component and from exports. Corn-for-ethanol use seems to be fairly well locked in at about 4.1 billion bushels for 2009-10.
So... let's say the market is trying to factor in corn plantings 1 million acres below the March intentions. Now let's drop the national average yield just 1 bu. from USDA's May projection of 155.4 bu. per acre. That would drop about 76.8 million bu. from the crop (let's just call it 75 million bushels). The combination of 1 million fewer planted corn acres and a 1 bu. per acre drop in the national average yield from the May projection would trim about 225 million bu. from the 2009 corn crop. That heightens the need for price rationing to slow total corn use just to keep 2009-10 corn carryover near 1 billion bushels.
The point I'm trying to make is the new-crop corn market is once again living right on the edge of a dangerously low corn carryover. After price action on May 18, it seems traders are starting to factor in the risk of a smaller-than-needed 2009 corn crop.