History shows corn exports slow to end the year
Bullish to corn futures are a stronger than typical export pace, 42% above year ago levels and at 951 mil bu, 33% higher than the most recent three year ave of 713 million bu.
Also bullish to the corn market is last week's announcement by India that it plans to officially ban corn exports, a three yr ave of 12.44 mil bu. Demand from ethanol continues to compete with other domestic use as well as exporters creating steady to firming basis levels (Dec Delivery at the Gulf hit a yearly high for this time of year at 68 cents over Dec futures), in part because of corn going to storage and not across the scale. Bearish to corn futures is the weak crude oil market and signs of domestic price rationing, most evident in the feeder cattle futures and chick and egg data ( see most recent chick and egg data below).
Weekly Export Sales: Sales of 41 million bushels for the week ended Nov 16th compares to pre-USDA report estimates of 43.3-55.1 mil bu. Sales were 25% below the previous week and 23% below the most recent four week average. The amount needed on a per week basis for the balance of the marketing year is 30.71 mil bu. Five year history suggest corn export sales performance slides by two thirds into the end of the calendar year and then makes a impressive correction as we enter the early stages of the next calendar year. Provided the world circumstances of impressive demand and short supplies, it is our advice we are unlikely to see a similar pattern going into the end of 2006.
Broiler Egg Set: This next section is becoming a very serious problem for corn and soybean meal use. Broiler egg set was down 3% vs year ago levels for the same week of the year. Over the last five weeks, egg set has been down 3%, down 2%, down 3%, down 3% and this latest 3% downward move. Why is that important? Because poultry is the largest consumer of soybean meal and 2nd largest user of corn when analyzing the feed use sector of the monthly WASDE reports. Eggs in incubators for broilers are now 207,577,000 vs 212,945,000 one year ago for this week of the calendar year. Broiler chicks placed are now 155,987,000 vs yr earlier levels of 162,967,000.
CFTC/Corn Price: According to our "Special Reports" section within our web site suggest funds are very toppy with its extended combined futures and options long position. Also not how price is very tightly bonded to the rise in long positions based on projected tight end stocks. This is very unlike a year ago when projections were more than double for end stocks. Take a good close look at the beginning of 2004 when end stock projections were very close to present projected 2006-07 end stocks. Even with thoughts of tighter than usual end stocks, fund found a reason to liquidate positions in the late winter, early spring time frame. The one huge difference for the upcoming time frame very well could be the funds attraction to ethanol demand.
Cash Corn: The Dec-Mar corn spread is at 16.6 cents carry. At $3.47 spot cash prices, the cost of carry is 4.2 cts per bu per mth or 12.7 cents. Anything less than 12.7 is a warning flag to move cash corn. As you work through your harvest, you might have a much better idea if there is sufficient storage on farm. If not, we would strongly advise to sell surplus bushels into the cash market when the spread strengthens to 12.7 or more. We fully anticipate futures and cash to work higher into the March-April time frame. This present spread level is not indicative of a short supply situation.