Yield trends the focus of summer
July 8, 2008
June 20—The floods in early June contributed to volatility as corn soared more than $1.40 per bushel in one week. Too much rain, at least at this stage, does not make grain. The market was in a panic mode as traders and end-users scrambled for corn needs or unwound short positions. However, what happens to demand as rationing comes into play due to high-priced corn? At the current values demand rationing has occurred.
The June USDA supply and demand report leaves much debate on the demand side as well as planted acreage and yield. First, the yield was slashed by five bushels to 148.9 bushels per acre, thus cutting production by 340 million bushels. Feed demand for the next marketing year was cut by 150 million bushels, estimated at 5.15 billion bushels versus 6.15 billion bushels one year ago. Corn demand into the ethanol sector is projected at 4 billion bushels versus 3 billion bushels one year ago. However, with current ethanol crush conditions these actual projections will ultimately be lower. Ethanol margin conditions will determine this corn usage as the market looks forward. The end-result as determined by the USDA is a 673 million bushel carry-out in the new marketing year, or a 5.4 percent carry-out-to-use ratio in the 2008-‘09 marketing year.
From a world perspective, corn carry-out increased by 4.26 million metric tons versus the previous estimate. That compares to 121.09 million metric tons one year ago and 110.16 million metric tons in 2006-‘07. The caveat in the global picture is China, which will produce 153 million metric tons of corn, use 157 million metric tons and export a mere 0.5 million metric tons. China is using more corn domestically and holding onto inventory despite higher prices. The graph illustrates China's production versus usage. An out forward curve can lead to corn usage outpacing production. Ultimately the carry-out shrinks with today's current production/usage ratio.
Prices will stay supportive from a fundamental viewpoint. Any pressure will come from the "fund money" liquidation.
The June USDA supply and demand report leaves much debate on the demand side as well as planted acreage and yield. First, the yield was slashed by five bushels to 148.9 bushels per acre, thus cutting production by 340 million bushels. Feed demand for the next marketing year was cut by 150 million bushels, estimated at 5.15 billion bushels versus 6.15 billion bushels one year ago. Corn demand into the ethanol sector is projected at 4 billion bushels versus 3 billion bushels one year ago. However, with current ethanol crush conditions these actual projections will ultimately be lower. Ethanol margin conditions will determine this corn usage as the market looks forward. The end-result as determined by the USDA is a 673 million bushel carry-out in the new marketing year, or a 5.4 percent carry-out-to-use ratio in the 2008-‘09 marketing year.
From a world perspective, corn carry-out increased by 4.26 million metric tons versus the previous estimate. That compares to 121.09 million metric tons one year ago and 110.16 million metric tons in 2006-‘07. The caveat in the global picture is China, which will produce 153 million metric tons of corn, use 157 million metric tons and export a mere 0.5 million metric tons. China is using more corn domestically and holding onto inventory despite higher prices. The graph illustrates China's production versus usage. An out forward curve can lead to corn usage outpacing production. Ultimately the carry-out shrinks with today's current production/usage ratio.
Prices will stay supportive from a fundamental viewpoint. Any pressure will come from the "fund money" liquidation.
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