The following commentary does not necessarily reflect the views of AgWeb or Farm Journal Media. The opinions expressed below are the author's own.
Kevin Van Trump has over 20 years of experience in the grain and livestock industry.
Corn bulls are a little taken back by the EPA's confirmation (on Friday) of a reduction in the ethanol mandates. Most sources thinking we go from a mandated 14.4 billion gallons per year in ethanol down to between 12.7 and 13.2 billion mandated gallons. Many ethanol executives and proponents will tell you this does very little to change overall production this year, essentially because we are going to offset the setback in mandated gallons with increases in ethanol exports and more E85 becoming available to the consumer. The problem I see however is how the larger traders are interpreting the changes. Just as the stock market bulls have been comfortable pushing stock prices higher with a so called "Bernanke put" in place, the market becomes extremely nervous to the downside when there is talk of the US Fed pulling out. Same thought process is circulating now in the corn market. With the US government "tapering" back the "mandated" number of ethanol gallons that are to be produced each year, the longer term bulls who thought the government had their back will be getting more and more nervous with each possible cut or reduction. Remember, it isn't so much the reduction in "demand" right now that is squirreling up the trade, rather it is the fact the US government has decided to reduced or lower what it had proposed as a requirement in the months and years ahead.
As of right this moment, though overall ethanol demand remains strong. Export sales are also very strong. Do you realize we have already booked some 65% or more of what the USDA currently has estimated for the entire marketing year? In other words the recently revised higher export estimates of 1.4 billion by the USDA might still be a bit short of reality. Several analyst are now arguing the US export sales number will soon be north of 1.5 billion and perhaps even higher. Bottom-line, nearby export, ethanol and feed demand continue to impress. My question is why be aggressively short with the US now being the low cost provider? I think producers holding recently harvested bushels need to continue being patient waiting for either a rally in flat-price or a rally in the basis. Read the rest of my comments in my daily report by CLICKING HERE...
No comments have been posted to this Blog Post