USDA's January report always full of surprises
Allendale January Report: The January Annual Summary report has long been known for its surprises and Thursday's was no exception. Any revisions in the coming months are expected to be small for production however likely more active in making demand revisions.
USDA Corn Fundamentals: USDA added 80 million bushels to the Dec corn est and uncovered a record crop in face of very stressful summer weather conditions, primarily in Illinois. With the expansion going on in all livestock classes (beef, poultry, and pork) they increased feed use by a big 125 million bushels. No changes were made industrial use (ethanol) as they already have the right increase for 2006 usage dialed in. Exports were lowered by 50 million, discussed below. The net result is only a marginal increase in ending stocks for corn from 2.419 to 2.426 billion bushels. The positive news for USDA to pass on to the trader is its season average cash corn price adj from $1.80 to $1.90. Allendale will release brand new July and Dec corn price projections as well as its outlook for supply and demand for the 2006/07 marketing year at its 16th annual conference, hope you can attend. That is NEXT WEEK so get your seat reserved!
Corn Sales: USDA adjusted export demand from 1.900 billion to 1.850 billion bushels. At 1.850 billion USDA is still looking for 2% more corn sales than last year. So far to date we have sold 891 million bushels which is 6% behind last year's pace. In order to make up for lost ground and meet USDA's expectation, exports from here on out need to run 9% higher than last yr. The last four wks have averaged 1% less than last yr. If continued we would see another 50 to 100 million bushels taken off of the 1.85 bil. Corn Technicals: We are short March futures based on weakening technical signals and slightly bearish export data but remain fundamentally bullish on domestic use such as feed and ethanol. We are willing buyers of the MGEX corn index as our recommendation point out in our Grain Trade Strategies pg Hedgers/Marketing: Allendale has a balance of 20% of 2005 corn production which has not yet found a home in the cash markets. Allendale will market this grain by either walking it off farm, (by feeding it to cattle) selling to ethanol processors, blend into the 2006 crop because of the impending La Nina or utilizing a basis and futures opportunity in the early spring BEFORE planters begin to seed the 2006 crop. New crop hedges are 50% complete with complete explanation for further hedges and option plans explained within our "Hedge Advice" page of the Allendale Advisory Report. We do suggest adding at the money new crop calls to the hedges placed when we have two successive closes above 2540.
Position: Traders, new recommendations have been written for the MGEX, (Minneapolis Grain Exchange) corn index contract. We are short March futures based on a technical correction with a tight stop just in case funds are ready to push futures higher the past two months after a bearish USDA report was released. Our objective is just above 2070 support.