Commentary
Yesterday’s WASDE release carried some surprises in my view across the grain board. The biggest shocker in my opinion was the USDA reducing harvested corn acres with a reduction of a whopping 1.6 million acres. This is the largest Nov-Jan acreage reduction going back to 1974 when the USDA started publishing data on the topic. It is my belief that the trade assumed the USDA, through its certification of FSA acreage would have dialed in the situation closely months ago, but apparently not. While harvested acres dropped, yield increased. The US yield improved to 173.3 bushels per acre from 172.2 in November. This was not able to overcome the acreage decline, and production fell 200 million bushels to 13.733, 200 million less than expected. What did overcome the production decline was the expected drop in demand. Export Sales commitments are down 19.5 million metric tons from last year and yesterday’s report showed the gap widening from the prior week. The USDA did acknowledge this by dropping demand projections by 150 million bushels. This puts the current sales commitments 5.5 million metric tons, behind the USDA’s updated annual projection. Given where beans are at with new crop hanging near $14.00 per bushel coupled with the high input costs for corn, new crop corn at just below 6.00 seems cheap. The market in my view will need to buy acres, maybe as many as 3 million with yields possibly near 177 to 178 to relieve a tight balance sheet. Demand near term is still an issue as China has boosted its imports of Brazilian corn. That said, the majority of Brazil’s exportable supply, won’t be ready for export until late Spring. I think we need to watch exports as it relates to the balance sheets. I think we could see a sustained rally on two fronts. First, better demand prospects for US corn until South American supplies are available, and second, a weather market (drought) that continues to plague South America particularly Argentina. Trade Ideas next week.
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