You are here
Is USDA right? Be prepared either way
You know what? I'm going to go out on a limb and declare the
USDA report wrong. This last USDA report kept corn ending stocks for the U.S. unchanged
at 801 million bushels. Trade isn't buying it. Me either. Most analysts are still
using between 570-740 million bushels as the true U.S. old crop corn carryout versus
the USDA's recent announcement of 801 million bushels.
There are a number of reasons why analysts think the numbers
are wrong, and they range from simple miscalculation to conspiracy theories. The
USDA just might be dragging their feet to admit the truth in regards to how tight
current carry out levels are until the mega acres of corn are securely planted this
spring. Dragging their feet has a much less dramatic effect on prices. It will be
easier to admit the truth when at the same moment you have an ace up your sleeve
knowing that the mega acres are going to save the day. That's kinda like when someone
comes up to and says, "Well, do you want the good news or the bad news..."
They only fess up the bad news because there are traces of good news coming behind
to make the bad news not seem so rough. My six year old does that to me all the
So when will the USDA numbers be "adjusted"? Most likely
after July pollination when there is a better guesstimate on yield potential. If
the crop is growing "just fine" and there is potential of tremendous yield,
then the bomb will drop in the August and September. USDA reports and carryout levels
will be adjusted lower. But then, the market won't be able to respond, because,
at that same moment, just in time, there is a bumper crop available to replenish
tapped out supplies.
Quite frankly, I hope these kind of political calculations aren't
happening. Rather, I hope it is simple miscalculation. Either way, the market has
an opinion of its own, and it's our job to be prepared.
We aren't victims here of some grand plan. We have brains in
our heads and tools in our pockets to handle whatever comes our way. Time to take
this approach: market scenario planning.
Cash corn basis will likely tell the true story, allowing for
basis (the difference between your local cash price and the Chicago Board of Trade
Price) to strengthen. Capitalize on that with any old crop corn you have on hand
(we're talking no. 2 yellow corn). Know your local cash market and track it daily.
Right now, it seems that two likely scenarios are going to emerge
over the next few months; July Chicago Board of Trade corn futures seem unlikely
to break above $6.75 (unless the USDA should admit tighter ending stocks within
the next two months), yet have ample support at $6.00. For now, that trend may continue
for quite some time. When prices touch near $6.75 are on the Board, with July futures,
pull the trigger with some cash sales. Now, if by chance, July corn futures can
climb above $6.75, the upside target looks to be near $7.50. And for now, that will
most likely be as good as it gets, because there will be such a large crop coming
The other scenario is regarding new crop corn. Most likely, it
may trade range bound between $5.00 and $5.75 until pollination and summer weather
is known. Any rally or debacle will most likely happen during that time frame, weather
No one knows exactly where prices are going. After analyzing
where prices might go, I suggest that you work with your advisor to develop your
marketing strategies for multiple price scenarios. Know what you are going to do
if prices climb to $7.50, and know what you will do if they hover around $6.75.
When you run the numbers and understand your financial picture in both scenarios,
you can feel more in control despite uncertainty. And you are nobody's victim.
Market scenario planning(sm) is a service of Stewart-Peterson
Inc. The data contained herein is believed to be drawn from reliable sources but
cannot be guaranteed. Neither the information presented, nor any opinions expressed
constitute a solicitation of the purchase or sale of any commodity. Those individuals
acting on this information are responsible for their own actions. Commodity trading
may not be suitable for all recipients of this report. Futures trading involves
risk of loss and should be carefully considered before investing. Past performance
may not be indicative of future results. Any reproduction, republication or other
use of the information and thoughts expressed herein, without the express written
permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2012 Stewart-Peterson
Inc. All rights reserved.