Corn bulls were pleasantly surprised to see the USDA bump their feed usage estimates higher by 100 million bushels. The 2.2% jump in feed demand this month follows the USDA's 300-million-bushel increase back in January. The bottom-line is theres simply a limited supply of hay and grass available in the marketplace. In fact it wouldn't surprise to eventually see the USDA push their estimate even higher in the months ahead. The current 4.55 billion bushels could still be some 100-200 million bushels light.
To offset the 100 million bushel gain in feed demand, as expected, the USDA cut exports by 75 million bushels and raised imports by 25 million. Both of which I would have to agree with. Unfortunately I am thinking they could still cut exports even a little more (possibly down to 800 million) and eventually push imports a little higher. Obviously the USDA dance-steps remain the same at "2 steps forward...2 steps back."
Old-crop supplies will continue to remain extremely tight, while new-crop supplies (without a major U.S. weather glitch) could become extremely burdensome. Producers with old-crop bushels, in my opinion, should continue to hold. Producers with more new-crop bushels to price (not yet sold a bushel or still less than 40% priced) have to understand that with between 96.5 and 98.5 million corn acres going in the ground, a national average yield north of 150 bushels per acre, and all of a sudden we are swimming in a 2.0-3.0-billion-bushel carry. This type of burdensome "supply," along with our current setbacks in "demand" would be detrimental to price... sub-$4.50 corn could be a definite reality.
No one obviously knows how the weather is ultimately going to play out, we already have planting delays in the South and several areas that are still extremely dry in the western corn belt. Therefore accurately predicting price direction is still a long-shot at best. The moral of the story however is that you have to prepare for the perfect "price storm." I can't tell you if the storm is going to hit us directly between the eye's this year or maybe next. It's still a ways out, but it is looking more and more like it could do some very extreme damage to price. Make sure you are prepared and have your operation in a position where you can comfortably ride out a 12-18 month severe price storm.
I hate to sound like a broken record, but even after the recent USDA data the lyrics remain the same: "Tight old-crop balance sheets for both corn and soybeans make time-spreads a much more attractive play than flat-price." Improving rainfall and snow coverage is easing concerns regarding the U.S. drought and therefore keeping a lid on U.S. new-crop prices. As each week passes the ability for old-crop tightness to help keep new-crop prices supported may get tougher and tougher.
Producers should make every effort to max out "Revenue Protection" this year, and lock in remaining 15-30% of your uncovered bushels that may remain at risk or not protected by insurance. If the weather here in the U.S. doesn't prove to be a major concern this season, prices ARE going lower! Demand simply isn't robust enough at this juncture to overcome the glut of new global supply coming online.
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