Corn trending higher?
Corn markets have been strong lately, Wednesday running to new 7 week highs on the strength of nearby futures contracts. Bull spreads are working in the corn market, which means it's nearby demand that is spurring the corn market higher. Confirmation of that demand has been coming weekly with export sales exceeding expectations. The fact that sales are outstanding compared to current weekly shipments in indicative of how much the tide has changed for corn exports in the past few weeks, since China made their first purchase in years. It seems all the world's buyers are now interested in buying corn - today rather than tomorrow!
That interest in corn is good for the market, as apparently it is true that corn prices represent a value buy in the marketplace. The old crop corn is the strongest market, a good sign indeed as nearby demand generally isn't canceled for later shipments. It is a sign of buyers who are more pressed to get supplies of grain into their hands, and that is always a positive sign for a demand led market (which corn seems to now be).
USDA's monthly report did nothing to dampen the enthusiasm of the demand-led bull market for corn. While we did see indications of larger supplies due to the early planted corn crop (81% planted by Monday, May 10), as evidenced by USDA's hiking the corn yield 2.7 bu above trend. Some were questioning whether USDA would already start indicating an above average crop for 2010 just based on early planting, but they boldly came out with another 200mb+ extra production based on the early planting. Yet, in spite of that extra supply, still we didn't have any extra carryout from what we thought we had last month.
The positive news all came on the demand side of USDA's projections, with an increase in 2009/10 exports of 50 mb (was this due to the China purchase?) and an increase in ethanol use by 100 mb. Feed use was cut 75 mb, but net we had an increase of demand which combined with the reduction of harvested area and yields for ND and SD (-21 mb production) meant a net drop in 2009/10 ending stocks of 161 mb.
So overall, the USDA outlook for 2010/11 is for larger supplies (from increased acres and above trend yields) with higher production; however, rising use is expected to limit the growth in ending stocks. Total US corn use is projected up 2% from the current year with higher expected FSI use and exports more than offsetting a decline in projected feed and residual use. Ethanol use is hiked 200 mb from 2009/10 at 4.6 billion bushels as we continue to use more corn grain for ethanol use again in 2010/11 (yet, its still growing!) as federal biofuels mandates and strong blending incentives continue to boost ethanol usage. So we end up with ending stocks at 1.8 billion bushels, still about the same as the past few years of stocks levels. But we are using more corn, so that the stocks/use ratio continues to suggest there is very little margin for error in the US for the corn crop.