Can corn get more bullish?
The difficult side of marketing is sometimes determining when we are plowing new ground or just reinventing the wheel. Friday's USDA report once again raised the possibility of both with its huge increase in corn/soybean demand projected for the coming year.
Looking at Friday's report, we are starting to wonder if the USDA projections aren't getting just a little bit too good to be true.
The corn domestic demand hike has been well documented (550 mb hike in ethanol use was projected as early as Feb by USDA), but the export demand increase by USDA for both old crop and new crop took the market by surprise. USDA also left the 2006 yield estimate at basically trend yields, when early planting could have easily pushed it up 2-5 bushels. So, are the new highs in grains an indication of more to come, or just the same old spring rally we should always sell (and regret not selling more of) year after year?
There are a few questionable practices by USDA that make Pro Ag wary of becoming too bullish at this time. Frankly, Pro Ag is surprised that USDA took such an aggressive stance in this report with export demand in corn. It's not often they increase price projections 20% and also increase export projections. Is this realistic? What made them so much more optimistic about corn demand this month than last month?
The second projection that is likely to be less bullish next month is corn yields. Generally, early planting means more yield potential, and to leave corn yields at 'trend' with ideal moisture almost everywhere seems a little too good to be true as well. The acreage number is just a reprint of the March 31 intentions, but early planting generally means more corn acreage.
Although we don't buy into the idea of a major change, 0.5 million acres might be in order.
Net, Friday's report might be 200-500 mb too optimistic in projected carryout cuts. We really question whether USDA is realistic in cutting projected carryout in half from last year's generous levels.
On the other hand, this is exactly the kind of rally we'd been hoping for this spring in corn, holding back on sales until this week on a majority of the corn. But, Friday was the first day that we could see the possibility that market impressions might just be too good to be true - even for corn. In other words, Friday was the first day in 2006 that we have become more concerned about lower corn prices than higher prices. Sure, with technicals breaking to new highs, there is the possibility of follow-through strength. And sure, once speculators start rolling, markets can run for some time before they reverse.
When grain bins on U.S. farms are still nearly record full with both corn and soybeans, fundamentally we wonder if the paper the USDA report was printed on is worth getting so bullish over.
The question we are asking (and you should ask it, too), is when is enough enough? We prayed for $3 corn futures just a few months ago, and today with the best moisture the Corn Belt has seen in about 12 months (and early planting to boot), we have it!! Perhaps it's time to take our heads out of the gift horse's mouth (or any other parts), and make some sales???