New crop corn stocks remain normal
Originally written on Friday
Corn: Everyone knows new crop numbers should be swinging around wildly right now. During summer we have the June 30 Acreage report plus dramatic swings in yields shifting supplies. Also, keep in mind demand numbers will be making big swings. USDA and everyone else are guessing demand from September 1, 2009 through August 31. That has not even started yet. So yes, we should expect big swings both up and down in new crop stocks.
Old Crop Numbers Should be Nailed Down: The hardest numbers to take this morning were the changes to the old crop balance sheet. We knew it would come eventually because the June 30 quarterly Grain Stocks report showed corn stocks as of June 1 were larger than expected. Two nights ago we detailed some preliminary estimates of how this fourth quarter (June â€“ August) corn usage could work out. The commentary noted that if industrial (which includes ethanol) +8%, feed -4%, and exports -3% compared with last year's fourth quarter then you have a usage of 2.463 billion. Taken off the June 1 stocks level we noted the marketing year stocks could hit 1.803 billion bushels. USDA came relatively close and estimated old crop stocks would rise from 1.600 to 1.770 billion. In case you are confused about the dates here, keep in mind the old crop year goes from September 1 to August 31. The old crop numbers that are reported each month are USDA's guess for what stocks will be on August 31.
New Crop Stocks Are Normal: September 1 starts the official new crop year. With extra acres from the Acreage report and a little more carry-in from old crop, USDA estimated old crop stocks would go from 1.090 to 1.550 billion.
Weather and Yields: One thing USDA did not touch this morning was their June 10 yield estimate of 153.4 bushels per acre. That surprised some who were arguing great crop conditions warranted an increase in yields. We have had relatively mild temps in the early portion of summer and regular rains. While that has been a problem for Illinois, Indiana, and Missouri is has been very beneficial for Iowa and Nebraska. Also, the forecast is still great. Over the next three weeks we will go through the big yield setting pollination time. There is absolutely nothing in the forecast which shows a reason for concern through pollination. Next week we will start up our yield forecasting model to get an idea of what the crop condition ratings are implying about yields. Our model uses all of the crop condition categories, not just good and excellent, and makes separate yield estimates for all the states.
Direction: One thing we have to keep in mind here is the market is not trading this morning's numbers. It is past that. The market is trying to correctly price in an increase in yields right now. Are yields running 2 bushels higher or 5 bushels higher than USDA used this morning? That is why you have some arguing corn futures may touch below 300. The new crop numbers we now have at 1.550 billion are very similar to what the old crop was running at the start of this year. From November 10 to February 10 old crop stocks increased from 1.124 to 1.790 billion. Crude oil prices were in the $30's and $40's. During that timeframe March 2009 corn futures hit a low of 305 1/2. In other words, when fundamentals were more bearish than they are right now, nearby corn futures hit 305 1/2. Our view of the corn market is that prices have hit our downside objective and is currently past it. If weather changes we would likely be buying right now. Producers are encouraged to hold all hedges. End-users are encouraged to continue hand to mouth.