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Sell only enough old crop for new crop space

Agriculture.com Staff 09/05/2006 @ 9:55am

Results of the 17th annual Allendale Crop-Yield Survey; suggests a projected US corn crop of 10.887 billion bushels and a bean crop of 3.109 billion bushels. This estimate was based on producer calculated yields in 19 states and was conducted from August 14 until August 25, 2006.

Corn Fundamentals: Strong demand and projected tight global stocks are met with large old crop USA stocks and expectations of a large new crop harvest just around the corner.

Historical Price Trend: The odds swings from next week out four weeks is huge for the corn and soybeans and just as impressive odds for the cattle and hogs.

Weekly Export Sales and Shipments: USDA nailed it! Very refreshing to see how USDA did not waiver month to month on its export sales projection for 2005-06 marketing year. With one week remaining in the marketing year, exports sales have reached 2.228 bil bu, 19% higher than last year and 22% higher than the most recent 3 yr ave.

Most importantly is how shipments have reached 2.091 billion bu, just 9 million bu away with a week left. Recent weekly shipments have been in the range of 40 to 55 mil bu, looks as though USDA may have to raise actual shipments for 2005-06 by 40 mil bu to a adjusted target of 2.129 bil bu. We estimate demand to be very robust for 2006-07 for at least the first two quarters of 2006-07 as major buyers grab their fair share before the competition does.

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!

Corn Marketing: Only move enough old crop to make room for new crop supplies, as old crop basis is weak and expected to remain weak into the end of the year. 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.

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.

From Aug to Sept: On average, USDA is 50/50 when adjusting corn yield from the Aug to Sept crop report. When they do raise production its been by an ave of 1.7 bu per acre (range of .2 bpa to 4 bpa) or 147 mil bu. When the adjustment is lower the yield on ave has dropped .9 bu per acre (range of .1 bpa to 2.5 bpa) or minus 63 mil bu. USDA's most recent new crop production estimate is 10.976 bil bu.

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