My Thoughts on the Supply/Demand Report!
Sep 11, 2009
These four-day weeks with reports many times seem to drag along; thank goodness it’s Friday! I’m still on the road; on the way home from meetings in Minnesota. The crops overall look very close to crops back in Indiana; they will have good crops as long as the crop gets enough time to mature. The real issue to my mind is beans--about 1/3 are turning a little, but overall they are short and spotty.
Today’s Supply/Demand Report: Most of the pre-estimates were right on target. While there are some in the trade who believe the corn yields will increase, I’m very comfortable with 162, but no higher than a 43 bushel bean yield.
The part of the report that really concerns me is the demand prospects. USDA has now done about all it can for the bull. It’s reduced the beginning corn stocks and pushed the demand to almost unbelievable levels. I really doubt the feed increase [again] in corn. I feel this concern is especially justified in light of the poor profitability status of a lot of hog, dairy and cattle producers. I don’t see them in any position to expand numbers or feed inventory to heavier weights. So the implication is USDA is using feed usage adjustment to keep corn prices from going too low and making potential risk exposure in the crop insurance too high!
After I saw the numbers today, I really thought the bulls finally had a chance to cause this market to bounce up. The USDA had strong demand numbers projected, the US Dollar was weaker and general comments were for higher price potential in the equity markets. With the outside markets being overall positive, I felt the potential existed for the market to be concerned about the lateness of the crop and potential loss of 10% to 20% of the yield potential if a frost would occur in September.
I’ve told producers to get ready for a bounce to make catch-up sells. The early higher calls were not correct! It opened steady and lost steam all day. In fact, I believe beans were the weaker commodity, pulling down corn and wheat.
The problem I see now is producers are still very upside down now in regards to pricing both old and new crop inventory. I have been hoping for a rally between now and late September on concern about frost to get some catch-up sales in place. Once we get into October and the concern about reducing the crop is over, the solid burden of proof will fall upon the bulls on a weekly basis to prove that export demand is, in fact, going to grow; we must confirm that hog and cattle herds don’t liquidate due to financial pressure by banks and we must prove that ethanol usage will stay high at current values.
Bottom Line: I believe once the supply bears prove the crop is out there, the bulls are going to work really hard for any gains they get. Please note that I’m still looking for mid-October to mid-November for a low. At that time, I am looking to roll all short positions to capture carry. Start focusing on aggressive put selling to enhance short position. Finally, feed buyers and end users should be focused hard on buying corn to protect the first two quarters of 2010 needs. We again encourage any end users needing help in setting up a long-term feed buying or reownership position to give us a call now so you can be ready to move when prices and time targets are reached. Call us at 1-800-832-1488.
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