Joe Victor: Allendale Wrap-up for Business Day 12/29/06
CBOT Trade Schedule: No side by side day trade Monday or Tuesday. Evening/Overnight electronic trade on Monday and Tuesday. Side by side day trade reopens Wednesday.
Corn Fundamentals: Combine improving S Africa corn production with Brazil's and Argentina's, and some relief is expected in the month of March. Argentina has responded to this past summers futures rally with an anticipated crop size of 19-20 million metric tonnes vs yr ago levels of 15.8 MMT. Domestic and world demand for corn remains strong and supported by equally thin end stocks to use for its cousin the wheat. China's gov't has announced it will use state stocks in the northeast to procure inventory needed to ship to Taiwan, estimated to be 500,000 tonnes which is the equivalent of 10.6% of Taiwan's annual needs.
Weekly Export Sales: weekly corn sales ending Dec 21 came in at 45.4 mil bu vs 49.7 the previous week. The weekly sales are less than the 10 week ave of 47.6 mil bu but above the five week ave of 44.5 mil bu. Thus far in the 2006-07 marketing year, sales have reached 1.173 bil bu vs yr ago levels of 833 mil bu and compare to a three yr ave of 892 mil bu.
Ethanol Production and Stocks: October ethanol production (data released 12/27/06) was 10.3 million barrels vs 10 million in Sept and 8.3 million in Oct of 2005 for a 24% increase. If the year to date pace were to continue, corn required for ethanol production could be 2.012 bil bu and not the 2.15 bil bu USDA is presently using. However with 3 to 4 plants coming on line each month, we suggest corn used could be closer to 2.4 to 2.5 billion bu. So production has increased 2 million barrels vs yr ago levels for the month of October, stocks levels are 4.2 million barrels greater and that is simply not good. Production increasing is good, stock building is not good. As of the month of October 2006 stocks of ethanol stood at 9.8 million barrels vs 9.7 million barrels the previous month and 5.6 million barrels a year ago October.
Historical Price Trend: please take a few minutes to glean the HPT page as it suggest, based on the most recent ten years, first week of the new year, odds are 50% for March corn futures to ave 6 cents higher and 30% odds of the average corn price to end 6 cents lower. It is the second week of the new year which does show the ave price to be better.
The Question Was Asked: what happens to the corn yield when acres planted exceeds the previous year by 6 million acres. The hypothesis is with additional corn acres, it could place more of a strain on yield per acre and potentially set up trend yield estimates of 150 bushels per acre up for ultimate disappointment. We need to inform you the latest range of estimates for next years corn acres to be added above the 2006 level is 6 to 10 million. We decide to use a low of 5.7 million acres added. There have been 5 years when added corn acres reached this benchmark dating back to 1973. In 1974, 5.7 million more corn acres were added to the 1973 levels. Yield per acre in 1973 was 91.4 bpa vs 71.4 bpa a year later, for a reduction of 20 bpa. 1974 Dec corn futures offered a value of 3200 near planting time and had a fall harvest value of 3900. In 1976, 5.9 million more corn acres were added to the 1975 levels. Yield per acre in 1975 was 86.4 bpa vs 88 bpa a year later, for an increase of 1 bpa. 1976 Dec corn futures offered a value of 2900 near planting time and had a fall harvest value of 2500. In 1984, 20.3 million more corn acres were added to the 1983 levels. Yield per acre in 1983 was 81.2 bpa vs 106.7 bpa a year later, for an increase of 25.6 bpa. 1984 Dec corn futures offered a value of 3050 near planting time and had a fall harvest value of 2700. In 1994, 5.7 million more corn acres were added to the 1993 levels. Yield per acre in 1993 was 100.7 bpa vs 138.6 bpa a year later, for an increase of 37.9 bpa. 1994 Dec corn futures offered a value of 2700 near planting time and had a fall harvest value of 2200. In 1996, 7.8 million more corn acres were added to the 1995 levels. Yield per acre in 1995 was 113.5 bpa vs 127.1 bpa a year later, for an increase of 13.6 bushels per acre. 1996 Dec corn futures offered a value of 3600 near planting time and had a fall harvest value of 2700. Provided the parameters above, four of the five years actually had yield increase the following year when a minimum of 5.7 million more corn acres were added to the previous year. Also of interest is to see how with the additional acres, increased yields and apparent successful pollination, prices corrected accordingly. Lastly, of the four years when yield was higher than the previous year, new record yields were established. What are your thoughts as to why this is possible to have odds so overwhelming for an increase in yield above the 2006 level?