Futures strength buying corn acres from soybeans
Corn Fundamentals: Bullish fundamentals include strong demand both domestically for feed use and for exports. Investment capital continues to pour into corn for ethanol. Also, over fear of inflation, based on the weaker dollar, there is a growing interest with those wanting to own tangible products such as the grains. Bearish signals are big domestic stocks of old crop corn. Bullish factors for new crop Dec futures are USDA's projected end stocks for the 2006/07 marketing year.
Because of the futures' reaction to the USDA WASDE report, talk is already circulating, given a average growing season, we may have likely witnessed USDA's smallest 2006/07 end stocks in Friday's report. Plus, futures strength is said to be buying additional corn acres away from soybeans.
For this week, we see a build up of soil moisture for the east Corn Belt and net drying for the west Corn Belt. For next week, we see just the opposite scenario for both belts.
Export Sales: USDA increased its 2005/06 old crop corn export target to 2.025 from 1.95 bil bu. Per the latest sales data for week ending May 4th, export sales are running 11% higher than yr ago levels. The present pace suggest a final sales level of 2.080 bil bu. Our research suggest old crop export sales drop off perceptibly in late June-early July. This is important to know if you are planning on holding and then flat pricing old crop 2005 grain. USDA set new crop export sales at 2.15 bil bu. USDA did increase corn exports to China for old crop corn from 100,000 tonnes (4 mil bu) to 290,000 tonnes (11 mil bu). However they estimate 2006/07 new crop export sales to China back to 100,000 tonnes, in a word, disappointing.
Ethanol Production: USDA left 2005/06 marketing year corn consumption for ethanol at 1.6 bil bu but catapulted new crop corn consumption to 2.15 bil bu or 34.4% higher. Based on 78 mil acres planted from the March 31st Planting Intentions report, Allendale suggest a level of 1.92 bil bu or more of a traditional 20% yr to yr increase. Transporting the finished ethanol product of ethanol to refineries for blending purposes remains a very serious barrier for producers.
Quarterly Corn Stocks: March 1 Quarterly corn stocks on and off farm of 6.987 bil bu suggest June 1 quarterly corn stocks could come in at 4.692 bil bu which would be 37% higher than the three yr ave and 32% higher vs the five yr ave for 3rd quarter stocks.
Season Ave Farm Price: For old crop corn, USDA left the season ave farm price range unchanged from April's est of $1.95 to $2.05/bushel. For new crop USDA has increased the season ave farm price to $2.25 to $2.65/bu. Looks as though USDA is working on as little if any LDP for the fall of 2006.
End Stocks to Use: Old crop domestic end stocks to use are 20.2% vs last years 19.8%. We would have to venture back to 1992 to find a larger value which was 24.9% with a stocks level of 2.113 bil bu vs the present 2.226 bil bu. Global stocks to use are 17%. Since 1980 only 2003 were tighter at 14.3%. New crop end stocks to use are projected at 9.8% when using 78 mil acres planted. If we plug in additional acres of 1.8 mil, taken primarily away from soybeans, the end stocks to use increase to 11.9% or 1.384 bil bu. Projected world end stocks to use for 2006/07 are 11.6%, which would be a record, even tighter than 2003's 14.3%.