March corn milling census may feed volatility
One corn fundamental bullish to corn is the speculative-driven trade which sees few if any signs of rationing, using consumable futures commodities as a hedge against inflation, dry summer La Nina talk and infatuation with alternative fuels. Bearish to futures is the impending Argentina and Brazil corn harvest and overcrowded room full of speculative longs.
Key fundamental events likely to have an impact on futures volatility are the March 1-2 USDA Annual Outlook Conference. On March 22, the U.S. Census Bureau will release its first ever findings regarding how many bushels of corn processors received, and production of processed products. Included in this report will have line items for corn gluten meal, corn gluten feed, wet corn gluten feed and corn germ meal production. Dry mill line items will be distillers wet grain, distillers dried grain with solubles, distillers dried grains, distillers dried solubles and conditioned distillers solubles.
First you sell the grain (released on Thursday USDA weekly export sales and shipments report), then you inspect the grain (released on Mondays) and then you ship the grain (released on Thursday USDA weekly export sales and shipments report). Inspections do not have to mirror sales. It's more than obvious the futures trade like to judge the actual results to the pre-release estimates.
We prefer to see if forward progress is being made with the actual sales. We suggest it is more important to have sales exceed the amount needed on a per-week basis in order to meet USDA's final target. If sales are slipping for even a short period of time, it can help better regulate how much and when grain inventory needs to be moved. These sales results not only have an impact on the futures bu the basis as well and can be used as a good risk management tool. One surprise the report held was how the United States' number-one annual cash buyer of corn -- Japan -- did not buy corn in the latest report. This is worth keeping an eye on to see if they have switched to South American suppliers.
On March 22, the U.S. Census Bureau will for the first time ever, report on how many bushels of corn are ground by wet and dry mills. For wet mills, Census will have line items for corn gluten meal, corn gluten feed, wet corn gluten feed and corn germ meal production. Dry mill line items will be distillers wet grain, distillers dried grain with solubles, distillers dried grains, distillers dried solubles and conditioned distillers solubles. The Census Bureau understands that these productions may be impacting corn use for feed and needs to get a much better handle of just how much corn is being replaced. Volatility for corn could come a week earlier than the scheduled Planting intention report to be released March 30th!
Special research Allendale performed suggest with more normal average end stocks amounts we focused on the old crop July futures three- and five-year average seasonal tendencies as well as the ave national cash price and have to remind ourselves it is the late March, very early April time frame when peaks have been reached for corn prices. In stock years, in 1996 the national cash corn price peaked at $4.43/bu in the month of July and in 2004 the national cash corn price peaked in April at $2.89/bu. Our conclusion would be we continue to stick with a program to begin to move 2006 cash corn in the month of March and with the newest data above conclude in short stocked years July corn calls could be bought as a form of reownership but be prepared to exit in April.