World end stocks tell the true outlook
Three surprises were included in Friday's WASDE Reports: The first is how aggressive USDA was with its first actual farmer survey by increasing corn yield by 3.2 bu per acre. #2 surprise was how the USDA survey found a sub 3 billion bu soybean crop and dropped yield by 1.1 bu per acre vs the July est. #3 surprise was to learn first hand on the CBOT trade floor how the locals went into the report long corn, short soybeans.
Corn Fundamentals: Corn demand remains strong domestically and exports. More animal units at least into the end of the year suggest steady feed demand. More ethanol plants coming on line also suggest higher trending corn demand. Friday's price weakness and into the initial push of the 2006 harvest is expected to find higher than usual demand especially with world stocks at 93 MMT second smallest since 89 MMT in 1983. Bearish to corn is the technical picture, larger than usual China corn crop and talk of Asia and Europe knocking on Brazil and Argentina's door to seek corn supplies.
Crop Production History: When was the last time USDA raised corn yield as much as they did Friday's 3.2 bu per acre, in 2004 by 3.9 bpa which grew to 160.4 bpa in the Jan annual report. USDA raised yield 4.9 bpa in 2000 to a level of 141.9 bpa only to see it drop to 137.1 in the Jan report. USDA raised the Aug yield by 5.9 bpa in 1995 only to have it revised down to 113.5 in the Jan report. A comment heard on the floor Friday was "August corn crops which are bigger than the July, only get bigger into Jan. Evidence above says do your research before you make such an off the cuff remark.
USDA raised USA corn production by 236 mil bu over the July report. Once again a remark made this morning shortly after the CBOT panel discussion began was this Aug revision higher was the largest dating back to 1970. In 2004 the production was increased by 284 mil bu to 10.919 bil bu, with a Jan production level of 11.807 bil bu. In 2000 the Aug prod was increased by 356 mil bu for a crop size of 10.369 bil bu, only to drop to 9.968 bil bu in the Jan report. In 1995 the crop size was increased by 337 mil bu to a level of 8.122 bil bu only to find a Jan level of 7.374 bil bu. Once again its time to break out the research archives and not make such outlandish statements. To summarize, yes the crop has the potential to become larger and is dependent on Aug to early Sept weather to help move the crop forward. What we have learned by the private weather sector is the mid Aug to mid Sept weather is expected to mainly conducive to crop maturity. However historically you can not rule out the possibility of this near 11 bil bu crop becoming smaller IF the private weather sector gets it wrong.
Dec Corn Five Year Ave: The most recent five yr historical ave suggest Dec consolidate in Aug and then sells off by 30 cents into harvest.
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.