Corn Yields and Ethanol Demand
Jun 26, 2012
Corn Yields: As most of us know the trade had already been discounting the USDA's yield of 166 bushel per acre and in fact most in the trade seemed to be trading a number closer to 160 bushels per acre. Now all of a sudden, it feels as if we are trading a number closer to 155 bushels per acre. I am telling you now, if the heat continues to surge in the eastern corn belt and the rainfall is limited, a sub-155 corn yield will be an afterthought. Many analyst are now in fact throwing around sub-150 type corn yields. I know this sounds extreme but a 149 type yield number can not be ruled entirely out of the equation. If you start to cut close to 1.0 billion bushels from the corn balance sheet, there are certainly going to be some fireworks to the upside.
July corn continues to struggle in comparison to the Dec contract as more end-users bank their hopes on "new crop" supplies arriving sooner than deliver of "old crop" corn. From what I heard yesterday, there was actually 88-day corn already harvested and in the truck coming out of a few fields in Arkansas. I am not sure about the specific yields or quality, but the word on the street is it was fairly good. You also need to keep in mind, Brazilian corn is believed to be trading some $35-$40 per ton below US supplies, therefore US exports may continue to struggle for the next few weeks. With "first-notice-day" this Friday in the July contract, being long "old-crop" over "new-crop" may end up being a loosing battle.
Ethanol demand seems to be a subject the corn bulls are trying to avoid. Yes, I am a "bull," but I also understand the importance of ethanol demand, which is now estimated to be over 5.0 billion bushels per year. Unlike corn being used for feed, where demand simply can't just go away...because the livestock have to eat, corn being used of ethanol can end with the simple flick of a switch. My point is if crude oil and corn prices continue to move in opposite directions many ethanol plants will have no choice but to shut off the lights (at least temporarily). Considering we have been chewing threw about 95 million bushels (plus) of corn per week for ethanol usage dramatic slowdowns in production could go a long ways towards offsetting problems and setbacks associated with the corn yield. As I have mentioned time and time again I need to see all of the stars aligned to give my highest bullish rating, right now we do NOT have the ethanol stars aligned, nor do we have the "macro" market stars aligned, therefore I can not be wildly bullish the corn market. Conservatively bullish based on extreme weather conditions and possible production setbacks, yes! Wildly-bullish...No, not at this juncture.
Wisdom of the ages would tell me to be smart up here and take advantage of this rally, especially if I were behind on my cash sales. The "outside" markets have been getting hit hard and they are nothing like they were the past couple of years when we enjoyed longer-term trending higher prices. My point is this trade is going to move...
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets. Just click here - Van Trump Report