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Strategy vs. outlook-Bryan Doherty
The much anticipated quarterly stocks and acreage estimate for the 2011 crops was released yesterday morning, and if you like surprises, it didn't disappoint. Pre-report estimates had corn acreage at 90.77 million. The actual figure came out at 92.3 million, a surprise to the market, which helped to send prices limit lower. The quarterly stocks figure was 11% larger than expected at 3.67 billion bushels versus the average estimate of 3.302. The stocks figure was outside the range of estimates. Soybean acreage was 75.2 million, lower than the pre-report estimate of 76.53 million. However, quarterly stocks were 619 million versus an average pre-report estimate of 590 million. Wheat acres at 56.4 million were about as expected, and cotton acres at 13.26 were larger than the March estimate of 12.57, yet within the range of most analysts' estimates.
So what does it all mean? For corn, it takes the air out of the bullish balloon. The acreage number may be debated for some time. South and North Dakota, Minnesota and Montana will be re-surveyed in July, with results posted on the August Supply and Demand report. The stocks number was bearish for corn. This should relate to a higher carryout, and in turn, suggest prices will be less sensitive to outside influences than prior to the report.
These reports and the reaction are a prime example of why strategy can out-perform outlook. There were very few, if any, who were indicating much chance that corn acreage would be above 90.77 million, let alone 92.3 million. The stocks figure was a surprise to the market as well. In turn, prices took a major slide. What could you have done prior to reports? You could have bought put options to establish a price floor or forward sold. You could have bought calls to cover forward sales. It's a long season ahead for this year's crop. Prepare for most anything, as the most critical detriment for price lies yet ahead; weather.
If you have questions or comments please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.