Today’s Supply/Demand Implications
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 firstname.lastname@example.org or email@example.com.
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