Corn planting delays may mean more soy acres
Bullish to corn is less than ideal conditions to begin a active planting campaign for 12 million more acres than last year.
The recent dip in prices which has brought renewed demand for domestic and export sectors, the perception of heavy flooding damage to Argentina corn and soybean crops and potential for frost-freeze in the major Midwest this coming weekend. Bearish to corn is the threat of a 48% bigger corn crop from #2 corn exporting country of Argentina, 6-8 million tonnes of corn exports from Brazil's immediate harvest and new winter corn crop exports which could exceed 4 MMT. 6-10 and Two Week NWS Forecast: the six to day and two week rain forecast predicts a potential break for the central Midwest but above normal rains for the northwest and east central Corn Belt, bullish to corn and the lengthier the planting delays, eventually bearish to soybeans. Allendale's research suggest the likelihood of the first planting progress report for 2007 may not materialize until Monday April 26th.
Tuesday's WASDE Report: Allendale suggests a slight increase in 2006-07 corn end stocks to a level of 767 mil bu vs March's 752 mil bu, predominantly from a little less corn for feed and increase in feed-wheat use, and the weaker export sales and shipments as of late. However end stocks of 767 mil bu remain well under the previous years 1.967 billion bushels.
Old Crop Corn: We exited our long May 270 calls near 12:30 pm Wednesday. These options will expire on April 20th, we are two days away from a three day weekend. If we were to walk back in on Monday morning and have found weather forecast calling for a better weather outlook, these calls could lose value. There is technical resistance above and with Wednesday's futures rally we decided to take action. These calls covered 66.6% of the 80% of old crop corn hedged. In essence the gain was 59 cents and ultimately served the purposed intended and that was to protect the hedges in the case of a winter rally.
Trade Posture: This recent price break benefits end users. The supply and demand picture for 2007-08 suggests smaller end stocks vs 2006-07 levels and volatility is expected to remain on high alert. With this price break, sub $4.05 cash corn is likely to inspire existing ethanol plants to secure profitable supplies and more importantly those under construction to get into the game on a quicker note and provide the stimulus for planned plants to also take action. The funds were in shock by the tree (acreage) but with prospects of planting delays in the spring, thoughts of a summer La Nina, and finally the forest (2007-08 end stocks) smaller than present old crop stocks, we remain long term bullish to corn. The Gulf CIF is responding favorably. We were able to buy May futures on Wednesday's low and narrowly doing the same on July corn. We may have the acreage planned for the right supply of corn to meet 2007-08 demand but unless weather conditions perform even near average, yield could be suspect.