Corn, China and Crude...How They Will Affect Prices
May 13, 2010
CORN: I have had a lot of questions as of late regarding China, I am assuming because of the recent rumors and talk of more U.S. corn purchases. In fact, it is being rumored now that the Grain Council president recently quoted on its website that China may have actually bought up to 15 cargos of U.S. corn. If you figure cargoes generally average about 55,000 tonnes, that puts their total purchases somewhere in the vicinity of 825,000 tonnes. If these figures are correct, that would mean 350,000 to 385,000 tonnes have yet to be reported.
As far as planting is concerned, things have started to pick back up in China as of late. They are certainly not on schedule, but seem to be picking up the pace as they had been experiencing significant delays in many areas due to very cold, wet weather in April and early May. The U.S., on the other hand, looks to be in great shape and the recent forecast of warm weather coming down the pipe in the next couple of weeks should prove to be very timely. If the China crop struggles, the U.S. could be in line for higher prices and heavy demand. Keep your eyes of the Chinese crop!
SOYBEANS: Do you realize they are now projecting the world ending stock levels for this year to reach almost 64 million tonnes? This is a huge jump if you consider we were just a hair over 43 million tonnes last year. They have now even gone as far as projecting the 2010/2011 world ending stocks will reach a new record high of just over 66 million tonnes.
You have to believe with these types of inventory numbers and the quick start to the planting season here in the U.S. that it may be forcing a wait-and-see attitude from the end users with regard to booking beans forward at this time.
On a more positive side, a few interesting pieces of information that I recently heard showed that the USDA has projected Chinese imports will rise another 6.5% to a record level this coming year. This basically means China will consume 57% of the total world trade in soybeans. In addition, higher oilseed stocks and weak prices in India have many looking for a slight drop in planted acres this year as producers could shift to more cotton or sugar.
WHEAT: Fundamentally, the wheat market has really been struggling. I hate to bring it up again, but do you realize the recent USDA report estimates our ending stocks to be around 997 million bushels (up another 47 million bushels from last year's projected ending stocks)? This puts our ending stocks at the highest levels since the '87-'88 crop year. Not to mention world ending stocks were also bumped up by nearly 5 million tonnes, putting them at 198.09 million tonnes, up over 30 million tonnes from last year.
I have heard of a few bright spots in the market. Strategie Grains, over in France, has cut its monthly estimate for the EU soft wheat crop by over 1 million tonnes due to bad weather in the western parts of Europe. And if you can actually believe this, export sales here at home came in higher than expected at 485,500 million tonnes versus expectations of 300,000 to 400,000 million tonnes.
I am afraid that with supplies at these levels, it will take more than this to sustain a long-term rally.
U.S. DOLLAR: It doesn’t look like we will see a ton of action today in the dollar with the Ascension Day holiday in Europe. I am starting to hear some rumblings over the acceptance of Estonia joining the EU. Many feel they are just not the right fit, actually adding to the struggles with their high inflation and falling GDP numbers. As the dollar continues to push higher, we have to wonder how it will ultimately start to affect our grain and livestock export numbers. The market certainly has one on the Green-Back!
CRUDE OIL: We were stopped out of crude oil this morning with a small loss. I believe right now this market is very uncertain in regard to price direction. It is simply not sure if it should trade higher on the news and optimism of a surging Chinese economy and prospects of an improving global economic situation and inflationary concerns, or plunge lower on fears of economic failure in the European zones and larger-than-normal inventory stock levels. I think the bulls will ultimately prevail, but we may see further downside pressure before we sustain long-term rallies.
With the USDA raising corn consumption for ethanol by 200 million bushels, I start to wonder if maybe they know something that we don’t. I know one thing for certain: I generally like to bet on the side of the government, as they tend to have access to information that most of us do not. If the USDA’s estimates hold true, it will bring our new crop ethanol usage to almost 35% of next year's production. By doing so, they are assuming the EPA will increase their blending limit to E-15 and that Congress will increase the ethanol companies' credit and tariff. Would say Uncle Sam knows best, but if you remember back, the USDA did something similar to this by estimating how much soy oil would be made into biodiesel. A problem arose when Congress allowed the tax credit to expire and the biodiesel industry came to a halt. I am hoping for a different outcome in corn; keep your fingers crossed and hope that the crude oil prices can sustain a rally!