Bullish corn fundamentals
Corn Fundamentals: Bullish fundamentals include strong demand both domestically for feed use and for exports. Investment capital continues to swarm to corn for ethanol, as well as those wanting to own tangible products such as the grains over fear of inflation.
Bearish signals are big domestic stocks of corn and the lack of confidence in China willing to stay out of the corn export market. Leaning on corn most immediately is the planting pace and ideas of increased acres above and beyond the March 31st estimate.
Acres Switching: First things first, dating back to 1993, USDA has not adjusted planted acres of corn in its May WASDE vs the March Planting Intentions report. On May 12th USDA will offer its first official estimates for the corn crop which is in the process of being planted. After the May WASDE all corn eyes will be on the June Planted Acres report. Dating back to 1993 there have been 5 years when acre adjustments of more than 1 mil acres occurred. Of the five years three reduced acres while the two years found corn acres increasing. Most recently 2004 found corn acres increasing by 1.964 mil and in 2000 acres increased 1.698 mil acres. Both years found those acres nearly unchanged by the time the annual Jan report was released. Three years had acreage decreases. They are 1997's 1.189 mil, 1995's 3.315 mil and in 1993, 2.227 mil acres. Of the most recent ten years, odds of 60% favor an ave increase of 723 mil and 40% odds against a acre increase ave of 986 mil.
Export Sales: Sales thus far this marketing year are 12% higher than yr ago levels. The present pace suggest a final sales level of 2.090 bil bu vs USDA present target of 1.95 bil bu. Our research suggest export sales drop off perceptibly in late June-early July. This is important to know if you are planning on holding and then flat pricing old crop 2005 grain.
Ethanol Production: At 8.5 million barrels, its 23% more than yr on yr levels. Production is down vs the previous months 8.9 mil barrels. Based on the pace of production for thus far in the marketing year, USDA needs to increase corn use for ethanol by 13 mil bu and use a new target of 1.613 bil bu. Stocks of 7.4 mil barrels is the largest on record vs the previous months 6.2 mil barrels. The largest stocks before today's release was 6.8 mil barrels as recently as May 2005.
Quarterly Corn Stocks: March 1 Quarterly corn stocks on and off farm of 6.987 bil bu suggest June 1 quarterly corn stocks could come in at 4.692 bil bu which would be 37% higher than the three yr ave and 32% higher vs the five yr ave for 3rd quarter stocks.
End Stocks to Use: Present domestic end stocks to use are 21% vs last years 19.8%. We would have to venture back to 1992 to find a larger value which was 24.9% with a stocks level of 2.113 bil bu vs the present 2.301 bil bu. Global stocks to use are 17.1%. Since 1980 only 2003 was tighter at 14.3%.
Dec Corn Futures: Suggest a Dec futures high of 2800 near term and correction to 2200 before the summer season could take futures back up to 2800 with a maximum high of 3000 under extreme conditions. Our fall low suggest a price of 2300.