Dry wheat regions may boost corn prices
Dry weather for southern Plains wheat, a huge ad campaign by GM for E-85 flex fuel vehicles, a run of very strong weekly export sales and the seasonal presence of funds are all viewed as supportive to the present corn rally.
It was only a short year ago, funds rallied corn over a six week period of time beginning in early Feb. At present, they just finished week four of this years winter seasonal rally.
Weekly Export Sales: thus far this marketing year, corn sales have reached 1.141 bil bu. Hatever happened to bird flu pressure? Sales are 7% higher than last years and are climbing towards 2003/04 pace of 1.201 bil bu. As we had pointed out in the annual Jan WASDE report, Allendale suggested USDA may have been too hasty to cut exports back from 1.9 bil bu to its Jan est of 1.85 bil bu. Typically this time of year we run 30 to 40 million bushel sales each week. These past four weeks have changed the export picture. Instead of lagging behind USDA's pace we are now running ahead of USDA's pace. Allendale suggest USDA needs to adjust its forecast by 45 million bushels in the next two months and further tighten stocks.
Ethanol: another change by USDA occurred on Thursday. They increased corn for ethanol use by 25 mil bushel. They now project a 21% increase in corn used for ethanol versus last yr. Based on the current plants in operation we are running only 19% higher. They are assuming new plants in operation in the coming months will make the difference by immediately switching on these plants by 95% of capacity. The net result of Thursday's WASDE is ending stocks fell from 2.426 to 2.401 billion bushels. That was just a hair away from our 2.396 billion bushel pre release projection. Allendale est end stks something closer to 2.350 billion bushels soon.
Quarterly Stocks: the next quarterly stocks report is scheduled for release on Mar 31st. At the Jan report we explained, based on historical use, we est the second quarter stks to come in a shade over 7 bil bu vs. a 3 yr ave of 5.73 bil bu. With the acceleration of USDA monthly usage balance sheet for corn, we would estimate 2nd quarter stocks a shade under 7 bil bu.
Hedgers/Marketing: Allendale sold its remaining balance of 2005 corn prod to the cash markets when futures hit 2180 vs March futures 01/25/06. New crop hedges are 80% complete after hedging another 10% at 2610 on Thursday of last week. For the futures and options section of our Hedge Advice page we added the 250 Dec calls as planned and have outlined the obj and risk. Feed Needs: we have switched out of the March and into the July futures for support and resistance levels. End users please make certain you are checking our Hedge Advice page for recommendations on meal and corn needs.
Corn Price Projections: Our price projections for July futures implied a move up to 2380 during the winter with an extreme up to 2520. This indicates we may be nearing overvalued conditions in the coming weeks. While it is easy to get caught up in the current investment led bull rally there is downside potential. Our proj indicate 1950 could be here by spring. From there a move up to 2320 with an extreme up to 2570. The main point here is current prices are areas to be working on old crop sales. If you want to be bullish it is with new crop. We projected a winter move up to 2540 with an extreme to 2610. That projection has been met as prices reached 2610 on Thursday of last week. From the winter high down to spring low a move down to 2130 could be seen. Upside during summer is projected to 2610 with an extreme at 2810.