New investment money funneling into grain market
Corn Fundamentals: active corn sales for export every day this week. Estimates for next Thursday's weekly export sales report appears to be a minimum of 1.4 million tonnes and upwards of 2.1 MT. The weak US dollar and lack of export competition are the key components behind staunch corn exports. South America will begin its harvest in Feb for Brazil, March for Argentina and ultimately apply pressure to US exports. Bearish to corn is the high cash price which suggest pressure for domestic end users input cost such as ethanol and livestock and poultry.
Quarterly Corn Stocks: on and off farm stocks as of Dec 1 suggest 4.218 billion bushels used for the first quarter of 2007/08. This smashes the previous record of 3.581 billion set just one year ago. The three year average use for the first quarter of the marketing year is 3.442 billion bushels. Of the 10.269 billion bushels of all corn stocks as of Dec 1, 64% of the stocks are on farm and 36% are off farm. One year ago 63% of the stocks were on farm, and 37% off farm. Strong hands hold the corn and may require a tandem effort of futures and basis to rally to pry bushels off farm.
Domestic Stocks and Stocks to Use: presently estimated at 1.438 bil bu vs December's 1.797 billion bushels vs 2006's vs 1.304 billion last year. In one year corn production increased by 2.539 billion bushels but equally significant is how total use has increased 1.744 billion bushels. Stocks to use of 11.1% vs 15.1% last month vs last years 11.6% and 2005's 17.5%. At 11.1% it represents the third lowest domestic end stocks to use dating back to 1980 with 2003 at 9.4% and 1995 remains the record low of 5%.
World Stocks and Stocks to Use: world stocks of 101 million tonnes vs last months 109 million tonnes vs last years 107 million tonnes, remains as the third tightest on record dating back to 1980, with 89 million tonnes the tightest in 1983 and 2003's 103 MMT. End stocks to use at 11.7% vs 12.7% last month and are the tightest on record dating back to 1980 vs 13.1% in 2006 vs a record high of 40.8% in 1986.
Season Average Farm Price: USDA's December estimate of $3.70 to $4.30 (average of $4) represent an increase of 35 cents on the low end of the range and 35 cent increase on the top end of the range. The SAFP for 2006/07 at $3.04 or 96 cents lower.
Old Crop Marketing: cash and futures spreads suggest to continue to store. The March - May futures spread is 11.6 cents. At present $4.55 cash corn, you need 8.8 cents to store for the two months and the futures market is paying better. Dating back to 2000, national corn prices have peaked more frequently in the months of Dec, April and May. Historically 40% of the annual corn crop is typically marketed in the Oct through Jan time frame. Allendale did add 10% hedges to old crop at 4680 on Wednesday Jan 2, 2008. Keep your eye on the US dollar. With corn exports projected to be a record 2.45 billion bushels, it is capturing the greatest amount of press. If the dollar begins to firm and the closer we draw to the S America corn harvest, price pressure is anticipated. To help offset a portion of this price pressure is the fact domestic and global stocks to use are historically tight.