Joe Victor: Commidity wrap-up for business day 1/12/07
Friday's Action: based on the pre release estimates for Friday's annual crop production, no one expected USDA to correct corn production downward by more than 105 mil bu. The largest drop from the Dec to Jan was 164 million bu. USDA on Friday corrected its Dec corn production estimate by 210 million bu. Add this nitro to high octane fuel of record first quarter use and record low level of projected world end stocks of 86 MMT vs 1983's low of 89 MMT and the investment community ran futures immediately to limit up. Once locked, investors swarmed to soybeans, wheat, soybean meal, soybean oil and oats. By the close it is estimated there are 93,000 (465 million bushels) contracts wanting to buy the market when trade resumes on Tuesday. At the close when calculating synthetic options, March corn factors a 17 cent higher opening when trade resumes and July corn up 14 cents.
Corn Fundamentals: the very latest of estimates suggest the net return per bushel of corn for ethanol production is $1 per bushels vs $1.78 just a few weeks ago. The net return is now at levels not experienced since early 2005 and did sink below the Dec 2006 low. This $1 return compares to a peak of near $7 in the peak driving season of 2006 when crude oil prices were pushing near $79 per barrel. Bearish to corn is the uncertainty of just what do the index funds have in store for balancing its 2007 investments shortly after Friday's vast array of USDA reports. Bullish to corn is record use, second tightest domestic stocks and record low world stocks, dating back to 1980. Please see the results of Friday's USDA reports found on the Midsession Comments page of this report.
Corn Production: at 10.535 billion bu is 210 mil less than the Dec estimate. This low level of production most closely resembles the 10.089 bil bu in 2003 in recent history. The 149.1 bu per acre yield is most reflective of the 2005 yield of 148 bpa.
Domestic End Stocks: the 752 mil bu of projected 2006-07 mil bu are 183 mil bu less than the Dec estimate and are caught in between the 1995 end stocks of 426 mil bu and 883 mil bu in 1996. 756 mil bu are the second lowest since 1980.
World Stocks: at 86 million metric tonnes, it is a record low dating back to 1980. The previous record low was 89 MMT in 1983.
Quarterly Corn Stocks: at 8.930 bil bu compare to yr ago levels of 9.815 bil bu. These stocks reflect usage of 3.796 bil bu for the first quarter which is a record. It suggest a drawdown use of 30% vs a three yr ave of 27%. The 3.796 bil bu use compares to a three yr ave of 3.327 bil bu and five yr ave of 3.213 bil bu.
The following margin changes will become effective with the close of business on Tuesday, January 16, 2007 @ the CBOT I. Changes to Margin Requirements
to $1,215/$900/$900 (Initial/Maintenance/Hedge)
From: $203/$150/$150 (Commodity Initial/Maintenance/Hedge)