Ideas of tight new corn supplies vs. demand support prices
Corn Fundamentals: The pre release estimates for Tuesday's USDA crop production and World Ag Supply Demand report are about as inspiring as were the weekly export sales for corn released on Friday which were very neutral. Futures remain supported on ideas of tight new crop supplies vs potential demand, strong domestic use and news of S Korea to permit US Beef imports. This is positive growth for domestic use of corn to feed out the cattle then ship the finished product.
Historical Price Trend: Over the past ten years, corn futures have averaged 10 cents lower for this week 100% of the time. There has never been a year when futures were able to finish unchanged or higher. In order to break these heavy weight odds, next Friday's futures close need to close at or above 2460. Weekly Export Sales and Shipments: USDA set a target of 2.1 billion bushels to be sold and shipped for the 2005-06 mkt yr. Sales beat the target by 136 mil bu and shipments beat the target by 40 mil bu. Thus there will be no carry over into the 2006-07 from the export column. The new 2006-07 marketing year began Sept 1 of this month and export sales are a record beating the previous ten years hands down.
Corn End Stocks to Use: Projected end stocks to use now at 10.4% vs 9.4% in 2003 for the domestic situation. Globally a level of 11.6% vs 2003's 14.3%. Projected world end stocks for 2006-07 now 93 MMT vs 103 in 2003! Lets go back to 1983 to find smaller stocks of 89 MMT!
Cash Corn Sales: Call your Allendale representative and ask them to explain the history behind when cash prices peak for corn producers and where prices find its low for end users. The graphs were sent to the Allendale representatives shortly after the close on Friday. Most importantly, ask the representative just how the end of 2003 unfolded into the beginning of 2004 and of key importance where those high 2004 cash prices early in the calendar year wound up near the end of the same year. Allendale went into great detail behind the specifics at the annual Illinois Bankers Association meeting held in Springfield, IL on Thursday the 7th. We covered specifically both the Illinois and national outlooks.
Corn Marketing: Our new crop hedges were rolled to the July to pay for storage on farm and added an additional 9 cents to our storage revenue for the 2006 corn crop. May 2700 calls to cover a third of the hedges were bought 08-15-06 and are doing well to remove margin pressure. We will add the second third of these hedges on Monday Sept 11th as outlined in our Hedge Advice page of the Allendale Advisory Report. If you do not have new crop hedges placed you may want to consider our anticipation of March futures rallying 80 cents into the first quarter of 2007 to a level of 3400. We advise to not wait for a top, but rather scale up hedge into the last 40 cent of the move and be certain to cover with at the money May call options. We advise to anticipate cash prices peaking in the Feb-Mar-April 2007 time frame. Call if you have questions about your own particular farm operation.