Today’s Supply/Demand Implications

Published on: 14:04PM May 09, 2014

Today’s Supply/Demand report was helpful to the bears case overall. The initial reaction to domestic corn stocks down 1.146 billion was well below the trade estimates of 1.3 billion implying overall good usage has been seen at $5. Exports were up 250 million bushels which accounted for most of the reduction. I was a little surprised by the feed usage number being unchanged since we are still experiencing very heavy weights in the hogs and cattle industry. So the domestic numbers were positive.

Unfortunately the global numbers were a different issue. Global corn production numbers increased significantly above trade expectation to 181.7 million metric tons as compared to 168.4 million for the current year. The reason for the increase was both good production numbers coming out of the U.S. at 1.726 billion and increased production out of South America this year. Bottom line: the report has dashed the hope of the bulls that increased demand prospects would reduce world stocks.

One must expect that next week’s Crop Progress report will show corn plantings over 50% but slightly below the 5-year average but catching up very quickly. The only way that the corn market will move higher now is if summer weather yield reduction events start to develop to move the U.S average yield down enough to get carryover reduction heading towards 1.5 billion or lower. We are currently net sellers of the market going into the report and looking to add shorts if possible above the $5.16 level basis the Sept corn. Our recommendation is to maintain flexibility by buying in the money Sept puts rather than selling cash or futures just in case Mother Nature does throw us a curve ball over the next 60 days.

In regards to soybeans, short term, inventory is still tight with carryover numbers projected at 130 million down a modest 5 million metric tons from the April estimate. The bad news is domestic carryover is still expected to move above 330 if trend line yields are seen. World stocks are forecasted at 82.2 million metric tons up from 67 million metric tons implying world production is on the rise while demand is good but not exceeding expectations. If yields are not negatively impacted, significant downside risk exceeds upside potential.

Side note: Over 10 cargo units of beans are reported to be delivered to central Indiana on the river. This is a first time event. Trade talk is soybeans after all cost were a $1 cheaper than local prices. This strongly implies all the speculative longs in the July beans will be under pressure as we move into June. If you have old crop beans still on hand, the report strongly suggests sweeping out the bins and get aggressive on getting a floor under the 2014 inventory.

If anyone feels they need to put structure into their risk management decision-making and would like to discuss marketing strategies, call Bob or Laura (1-800-832-1488). We will also try to answer questions in upcoming blogs and we welcome emails to [email protected] or [email protected].

THIS MATERIAL HAS BEEN PREPARED BY A SALES OR TRADING EMPLOYEE OR AGENT OF UTTERBACK MARKETING SERVICES, INC. AND IS, OR IS IN THE NATURE OF A SOLICITATION. THIS MATERIAL IS NOT A RESEARCH REPORT PREPARED BY UTTERBACK MARKETING SERVICES, INC. BY ACCEPTING THIS COMMUNICATION, YOU AGREE THAT YOU ARE AN EXPERIENCED USER OF THE FUTURES MARKETS, CAPABLE OF MAKING INDEPENDENT TRADING DECISIONS, AND AGREE THAT YOU ARE NOT, AND WILL NOT, RELY SOLELY ON THIS COMMUNICATION IN MAKING TRADING DECISIONS.

DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.

THE RISK OF LOSS IN TRADING FUTURES AND/OR OPTIONS IS SUBSTANTIAL AND EACH INVESTOR AND/OR TRADER MUST CONSIDER WHETHER THIS IS A SUITABLE INVESTMENT. PAST PERFORMANCE, WHETHER ACTUAL OR INDICATED BY SIMULATED HISTORICAL TESTS OF STRATEGIES, IS NOT INDICATIVE OF FUTURE RESULTS. TRADING ADVICE IS BASED ON INFORMATION TAKEN FROM TRADES AND STATISTICAL SERVICES AND OTHER SOURCES THAT UTTERBACK MARKETING SERVICES, INC. BELIEVES ARE RELIABLE. WE DO NOT GUARANTEE THAT SUCH INFORMATION IS ACCURATE OR COMPLETE AND IT SHOULD NOT BE RELIED UPON AS SUCH. TRADING ADVICE REFLECTS OUR GOOD FAITH JUDGMENT AT A SPECIFIC TIME AND IS SUBJECT TO CHANGE WITHOUT NOTICE. THERE IS NO GUARANTEE THAT THE ADVICE WE GIVE WILL RESULT IN PROFITABLE TRADES.