September corn continues to be a major question mark??

Published on: 16:29PM Jun 12, 2013
Some say there will be a major push to higher ground as supplies tighten, while others believe Sept ultimately goes off the board (more traditionally) at a discount to Dec. Below are a few thoughts I have been hearing and something to consider if you are concerned about how this old/new Sept contract is going to play out.
  • Ethanol margins obviously continue to fuel demand for old-crop corn. The question is will margins remain strong enough to entice plants to continue bidding up price. One concern is the fact Brazilian ethanol supplies are rumored to soon be landing on US shores. I haven't been able to get an exact handle on the amount, but talk is somewhere between 200 and 400 million gallons could soon be coming our direction. When it shows up is another question. If it is delayed, and plants can continue to operate at these very lofty profit margins, then I could see the Sept contract continuing to be bid higher...guess is sometime into mid-August. From that point forward you have to imagine South American imports and early US corn will help offset demand.  
  • Producers talking that harvesting corn "early" is still their plan. Many saying that drying corn at 30% moisture is still worth doing considering the premium. There is also some speculation that with producers being forced to harvest late planted corn early this season, trying to beat the cold, we could surprisingly see a jump higher in overall yields. Thoughts are producers the past couple of years have left corn in the field too long...not wanting to incur drying expense, this in turn has shrunk yield to some degree. Being forced to harvest the corn a little earlier may provide higher test-weights and yields.  
Moral of the story, the SEP13 corn contract may continue to gain on the DEC13contract, at least until South American ethanol supplies start showing up. Profit margins at ethanol plants are the best they have been in a long time and this should allow many plants to continue bidding up for corn in the near-term. My thoughts are once these margins begin to tighten, on higher corn costs and competition from imports, plants may simply opt to close the doors for some extended summer maintenance.  Ultimately waiting for new-crop supplies to become more readily available. Rolling old/new bull-spreads forward into the "Sept vs. Dec" might pay dividends the next 30-60 days, but just be careful holding old-crop bushels for too long... The party could end in a real hurry with Brazilian ethanol on the way. Keep in mind Brazilian ethanol imports not only pencil into California but also into the Gulf! 
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