How Aggressively Will the USDA Cut Yields?
Jul 10, 2012
USDA will be releasing their updated World and US supply and demand data tomorrow morning 7:30am CST. My hunch is the USDA will lower corn exports by 25 to 50 million bushels. I also think they may lower there estimate for corn used for ethanol by 25 to 50 million bushels. As always "feed usage" remains a complete wild card, but from my perspective, I think the USDA needs to raise their 11/12 feed usage estimates by 25 to 75 million bushels. Don't know if that will happen or not, but my guess is the 11/12 carryout will fall just a hair or stay right around the current 850 million bushel mark. As for the 12/13 corn numbers, there is no question production totals are going to come down, the question is by how much. With the USDA not using farmer surveys until the August report and sticking with the June planted and harvested acreage estimates for these numbers, I am doubtful that the USDA will paint as bleak of a picture as the market is now trading. Will yields drop? Certainly, but I doubt to the levels the trade is currently using. My guess is the USDA will cut aggressively (for them) from their 166 estimate down to about the 152-156 level. The problem is the trade is thinking a 142-148 yield is now more accurate. The trade is also now thinking one million to four million fewer acres will actually be harvested. The bottom-line, US corn production numbers for 12/13 will definitely fall from last months estimates of 14.79 billion bushels, but I am doubtful the USDA will push production down to 13.0 billion bushels, a number many in the trade are currently starting to eyeball. Let's also not forget the USDA will more than likely massage the "demand" side of the balance sheet by cutting exports, feed usage and possibly even corn used for ethanol. Net-net the "new crop" balance sheet could still end up with a carryout well above 1.2 billion bushels. Keep in mind, many corn bulls who are now in the marketplace are penciling the 12/13 US corn carryout at around 600-800 million, not 1.2 billion plus. My point is even though Santa may deliver a few summer time presents under the tree, it may not be what many traders were hoping for. A slight disappointment could produce a little short-term knee-jerk type reaction to the downside. I would suspect this to be only temporary as the market will immediately start to refocus on production failures and extremely dry soil moisture levels. An eventual move in DEC12 corn beyond $8.00 can not be ruled out of the equation, especially if the second-half of July turns back towards the hot and dry conditions we experienced during the past couple of weeks.
Soybeans seem to be a no-brainer, but the question many bulls are asking is, "Will the USDA really show how bad the situation has become..." Not only are yields and harvested acres in question, but demand is rising faster than the USDA had recently anticipated. There is a chance the crush here at home could move higher. You definitely have to believe exports are pushing higher. With demand moving higher and production moving lower there is only one way for the balance sheets to go...my guess is tighter in both 11/12 and 12/13.
As a producer, make certain you are comfortable with your current "sales," if you need to get caught up then do so. If you feel you maybe "over-sold" then make the necessary adjustments! My suggest is to be somewhere around 60% sold. This is 60% of your CURRENT estimated yield, not 60% of your original estimated yield. Remember, we have some producers who are reporting their crops look as if they will harvest more than they originally planned, while others are reporting a complete disaster. You have to be your own best advisor, no one knows your farm, your ground or your operation like you do. Take the information that is available and design a plan that is tailored to fit your specific needs. As I always say, "No one operation is the same, so there is no one cookie-cutter marketing program that is right for everyone." You have to make the necessary adjustments based on your available cash-flow, production changes, storage capacity and risk tolerance.
IF you would to know where we are making our cash sales, you need to read my daily newsletter. 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