Trade can overreact to freeze
To end the week, the corn market saw good support on light volume trade. There are a few good reasons to expect support in this corn. First, we saw good exports Thursday of 1.1 million tonnes, beating trade expectations. This offered old crop support throughout the day. Secondly, trade is looking for corn stocks to fall on Tuesday’s supply/demand report. Estimates call for the stocks to drop from 801 down to 721 million bushels. That appears to be a fair estimate, after seeing the cut in stocks last Friday. Lastly, on the new crop side, there is a call for a freeze line next week that drops as far south as central IL. Producers that we have talked to from that area mention that very little damage is actually expected, as most feel the growing point will still be underground on the earliest planted corn. This forecasted freeze is for Thursday of next week which means we will have to see if this forecast holds up once trade resumes Sunday night. Let’s be sure not to underestimate how excited trade can get over this freeze. Even with no damage expected, this news is likely to keep December well supported if not even see a small bounce. Both old and new crop traders can expect support right now. Old crop will still need a significantly bullish supply/demand report to break $6.75 3/4 resistance. New crop will need continued talk of a freeze Monday morning in order to continue support.
Stocks and Pricing: Traders are hopeful that next week’s report will lower ending stocks a little closer to the 700 million bushel region. That also leads some to wonder if prices can get up to the same price levels as last August when stocks were seen at 714. That price was 701. We remain medium term supportive with a May target of 687 based on our 742 million bushel estimate. December futures are a clear sell at 550 on up.
(4/3) Sold May corn at 665, risk to 685, objective 635. Settled 658 1/4.
Closing Cattle Commentary
Let’s wrap up the week with a discussion on 2012 pricing. Tonight’s chart shows clearly how cattle prices ran at clear premiums to last year pricing through the first quarter. Beef production was about 3% under last year during that time. With one month down of the second quarter, the mindset has changed. Beef production in recent weeks has ran about equal with last year and prices are about the same as well. With high gas prices and last month’s media blitz this market has lost its mojo. In the big picture this is not a complete bust. 1) The squares called “implied 2012 cash) show what the market things cattle will be in the future. These are derived from taking the normal basis for that time off futures. The market is pricing in a $115 for cash cattle in the summer. 2) The real interesting story is the market’s view of fourth quarter pricing. As we have noted before, the tight supply story of 2012 will be seen in Q4 and spillover into Q1 of next year. On the March supply/demand report, USDA was thinking beef production would be 8.5% smaller than last year at the end of 2012. Allendale is looking for a more moderate 5% reduction. Pricing, however, is only moderately higher than last year. We have no doubt that this demand problem will be fixed by that time. Next week, we will discuss this underpriced Q4 situation more in-depth.