Investment in corn market continues
For the corn market, the bullish fundamentals include strong feed use and ethanol demand. Investment capital continues to pour into corn for ethanol. Because of a weaker dollar, investing in corn is popular for those wanting to own tangible products such as the grains as a hedge against inflation.
Bearish signals are big domestic stocks of old crop corn, initial crop quality ratings at 66% which is 6% higher than the five year ave and the weather. Bullish factors for new crop Dec futures are USDA's projected end stocks for the 2006/07 marketing year as well as long range global end stocks to use for wheat and corn.
Historical Price Trend Page: Our HPT page has strong odds for the long side of corn next week but the risk to reward is ridiculous. The odds have shown slightly weaker odds for the four week out period of time.
Export Sales: USDA's export target is 2.025. Cumulative sales of 1.772 bil bu are 14% better than year ago levels and the highest over the most recent 3 previous marketing years. If corn is able to maintain a similar pace for the balance of the marketing year, sales could finish at 2.126 bil bu.
Ethanol Production: Ethanol production data is released for the month of March. Production at 9.3 million barrels is 24% higher than year ago levels, stocks at 8.7 mil barrels is up 31.2%. Based on current trend, USDA needs to increase corn use for ethanol by 20 mil bu for the 2005/'06 marketing year. Dating back to 1998/99 monthly ethanol has had a tendency to soften slightly for the month of April but then steadily climb into the end of the calendar year.
Basis: dating back to 1989 gulf basis which competes with domestic corn use has ave 22 cents over July futures, the max 36 the weakest 3 over. Historically basis has had a tendency to work higher into late August. However with a greater than ave surplus of old crop stocks, basis is likely to remain much weaker than ave and find little inspiration to rally unless a major weather event were to jeopardize the 2006 corn crop.
Corn Yield: Traditionally we do not say much about projected corn yield until we are much further into the growing-pollination season. However to meet your request, here is what our research suggest. With the first initial crop rating at 66% good to excellent, it suggest a yield per acre of 155.4 bushels. Using USDA's most current planting acreage estimate, the quality rating yield estimate suggest a corn crop size of 11.002 bil bu or 452 million bushels more than USDA May WASDE estimate. If we add our projected acreage increase of 1.6 mil acres from the March Planting Intentions report to the June planted acreage report, the production is then raised to 11.221 billion. Compare this production estimate to the May WASDE and it represents increase of 671 mil bu and could take USDA projected 2006/07 end stocks from 1.141 bil bu to over 1.8 billion bu.
Planted Acres: Allendale estimates corn acres to increase 1.6 million above USDA's March planted acreage estimate of 78.02 million. At 79.62 mil acres planted it suggest 2006 corn production of 10.760 bil bu (using USDA's 149 bpa) vs USDA's present estimate of 10.55 billion bu. Another firm based out of TN is looking for a 1.8 mil acre increase. The two most significant acre increase from the March to June acreage reports have shown 1.964 million in 2004 when Dec futures rallied 25 cents and 2000's 1.698 mil acre increase when Dec futures rallied 13.25 cents. This years rally was 10.5 cents.