Weather Still Main Issue despite USDA Report
Jun 28, 2012
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The corn market is higher again this morning after finishing yesterday’s session 20+ cents off the highs in most contracts. The weather situation has not changed. Forecasters continue to call for extreme heat and very little rain throughout the country through the 10-day period. Data from the recently inaccurate GFS model is being ignored by more meteorologists in favor of the more accurate European weather model, which continues to stay dry next week. Some northern Corn Belt areas may receive scattered rains this weekend; however it doesn’t look as if a "crop saver" is in the cards. Even farmers in the more well-off areas such as S. Minnesota and much of Iowa believe that their crops will come under major stress during the next couple of weeks without a significant rain event.
Soybean and wheat prices have struggled relative to corn this week. Current weather conditions will have far more impact on the corn crop than either soybeans or wheat. In general, the corn crop is "made" in July and the soybean crop is "made" in August.
A Reuters poll of grain analysts pegged US corn yield at 157bpa, almost 10bpa above last year’s final number. Without timely rains during the next several weeks, a yield this high is unachievable in our opinion. The USDA’s most recent yield estimate is 166bpa, a number that is universally thought to be at least 6-7bpa too high.
More stories of ethanol plant closures or production halts are surfacing. Valero announced yesterday that a plan in Linden, IN will close due to poor margins. Nearly 40% of US corn production goes towards the production of ethanol. Traders are also looking towards the livestock sector for further demand cuts. Feeder cattle prices have been in a free-fall this week, however did show a chart reversal pattern to the upside yesterday. Export demand makes up a much smaller part of overall demand for US corn.
The USDA will release its Quarterly Stocks and Acreage report tomorrow at 7:30am CST. The report is insignificant relative to current weather issues in our opinion. Traders are looking for both corn and soybean acreage to increase from the March Planting Intentions report. Old crop corn stocks have been heavily debated by traders who believe that they have been grossly overestimated by the USDA. The pre-report "cheat sheet" can be found on the following page.
Interior basis levels have dropped off significantly during the past several trading sessions. In general, a sharp rally in futures will result in a basis break. The domestic demand situation regarding both ethanol and livestock also plays a role in the basis drop-off.
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