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Quarterly stocks number?

The market was caught off-guard last week when the USDA's
Quarterly Stocks Report added 300 million bushels of corn into its final stocks
figure. Pre-report estimates were close to 1.4 billion and the final number was
1.7 billion. So what happened? We'll try to answer that with the USDA's
explanation, as we now believe we know it. In addition, we will counter that
with our own thoughts.

The USDA seems to emphatically imply that no new crop corn
harvested was counted in these figures. The USDA has indicated that their
survey methods are designed not to count new crop. In our bias, there is a
difference between "not designed" and what actually does happen. We
can't help but think that, with harvest running 7 to 10 days ahead of schedule,
some new crop corn may have been pushed into the pipeline.

Perhaps more importantly, we are curious and concerned as to
the survey method itself. From our customers, we have heard a consistent pattern
indicating corn usage was on the rise last winter due to poor quality corn and
low test weight. We had some belief that in the end there would be fewer
bushels on hand. That appeared to be the case in the June report when 300
million bushels were viewed as a disappearance. Our bias is that increased
usage, due to quality issues, was a plausible explanation. So, where did the
300 million bushels in September come from? Supposedly is transit? Hmmm…

History is also on the side of questioning the USDA figure.
In 2007, the September report also appeared inflated and by January, 200
million bushels disappeared. Again, it is plausible that poor-quality old crop
corn on hand was blended as soon as new crop was made available.

At this point, we are not convinced that the final story is
told. Stay tuned for more volatility in the months ahead. Both end users and
producers should continue to be strategic in their approach to marketing and
make sure they have their bases covered, as recent history (the last 4 years)
has indicated that mindsets and numbers can change in a heartbeat.

If you have comments, questions or suggestions, contact
Bryan Doherty at 1-800-Top-Farm, Ext. 129.

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