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Are you listening? You should be!
Walsh Trading is pleased to announce the Walsh Trade Voice (WTV) 2008 Cornbelt Snapshot Tour report has begun. With quality first hand information you cannot get anywhere else, the Cornbelt Snapshot can be heard live at 7:35 AM, CST on WTV and in its recorded version once the live broadcast is completed. The 2008 Cornbelt Snapshot Tour features input from 8 diverse locations throughout the entire U.S. Cornbelt. Listen now!
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Today's Featured Article
The 2008 crop year has begun as one of adversity for U.S. corn producers and consumptive end users alike. The crop was planted in an excruciatingly slow manner with persistent rain and cool temperatures challenging most producers every step of the way. The last week of April through the first week of May is widely considered to be the optimal planting window across the heart of the corn belt. Crop progress numbers released May 5th showed 27% of the corn crop planted compared to 59% on a five year average with 4% of the crop emerged compared to 17% on a five year average. A month later the progress and condition numbers released on June 2 (the last week USDA
reports corn planting progress for 2008) showed 95% of the corn planted compared to 98% on a five year average, 74% emerged compared to an 89% average, and 63% in good to excellent condition compared to 78% on average. To add insult to injury, torrential rains on June 10th,11th, and 12th resulted in millions of flooded acres.
During the month of May CBOT July corn futures traded in a range defined by a new contract high of $639.00/bu and a monthly low of $572.25. The market then marched higher in June with further stimulus from cool/wet weather, stable to improved ethanol processing margins and the powerful leadership of an explosive crude oil market. In response to June flooding on the upper Mississippi River, July corn futures rallied to a new contract high of $758.00 on 6/16 as deferred contracts went above $8.00.
Gross spot processing margins for Iowa ethanol producers averaged $2.74/bu for the week ending May 2. Weekly averages showed gross margins of $2.60 w/e
May 9, $2.96 w/e May 16, $2.95 w/e May 23, and plummeted to $2.02 by w/e June 6, posting a minor rebound to $2.11 w/e June 13 and a more significant rally to $2.61/bu w/e
June 20. With production costs thought to range from $1.90 to $2.10 for most plants, the industry plunged into red ink in one fell swoop. A handful of new ethanol plant openings have been delayed and there are reports of some plants declaring bankruptcy reorganization. Brazilian ethanol is surging into the U.S to fill the void left by U.S. plant shutdowns and delayed openings. High gasoline prices, rising food prices, and credit stress on the U.S. economy have pushed the ethanol industry into the political spotlight. The key market drivers under scrutiny are the $0.51 tax credit paid to U.S. ethanol blenders and the $0.54 tariff imposed on ethanol imports (primarily from Brazil).
Weekly corn export sales for the week ending 5/8/08 were 547,208 metric tones, followed by 507,241 w/e 5/15, 477,427 w/e 5/22, 530,167 w/e 5/29, 524,563 w/e 6/05, and 342,956 w/e 6/12. The smaller 342,956 total sold w/e 6/12 may be an indication that price rationing of export sales has begun. Time will tell if a trend emerges.
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The CFTC Commitment of Traders report released on 6/20 showed that as of 6/17 the Index Funds had increased the their net long position to 430,500 contracts from 427,300 the previous week, the Trading Funds decreased their net long position to 198,500 from 219,100 the previous week and Commercial Traders
decreased their net short positions to 539,400 contracts from 551,900 the previous week. The increase in the Index fund longs can be attributed capital inflows while the decrease in the Commercial short position is due to the ongoing pinch of tight credit and high margin requirements. The trading funds have begun to take profits on long positions.
As floodwaters recede, the job of estimating lost acreage begins in earnest. Not all flooded acres will be lost as water drains quickly at the periphery of the flood plain. Crops closer to the main watercourse stay underwater longer and will suffer some loss of yield potential, while crops in the flood zone are washed out or stay underwater so long as to be totally lost. A reasonable estimate of lost corn acres at this point is 3 million. This would take USDA's June 10th harvested acreage estimate of 78.8 million acres down to 75.8.
USDA reduced their June 10th national average yield estimate by 5 bushels per acre to 148.9 bpa due to the cool wet conditions and late planting that occurred prior to the major flooding. Surviving but flood stunted corn along with the greater than usual number of replanted corn acres this year supports the argument for a further reduction in the national average corn yields of 3 bpa. A 145.9 bpa yield on 75.8 million harvested acres produces a corn crop of 11.059 billion bushels or a reduction 676 million bushels, effectively taking the 08/09 carryout to 0 if USDA's demand estimates were left unchanged. Demand will not remain unchanged however, as higher prices have already had some
marginal effect on ethanol grind, livestock feeding, and export sales. If these factors are combined it's reasonable to in crease the '08/09 beginning stocks by 200 million bushels. This leaves the market with the job of maintaining prices high enough to trim 300 to 400 million bushels of demand in order to maintain adequate pipeline supplies of corn in the 500 to 600 million bushel range.
USDA has indicated that they are in the process of conducting a supplemental survey of flooded acres in Ia, Il, In, Mn, Mo, and WI. They say that they will make adjustment to earlier acreage surveys based on the results of this survey and those adjustments will be included in the June 30th acreage report. In addition, USDA says that it will conduct a larger and more through survey in July and the results of that survey will be released in conjunction with the August crop report.
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Our 145.9 bpa national average yield is based on the assumption of favorable weather for the critical pollination period and the balance of the growing season. If the flood-reduced crop should suffer additional stress due to continued wet conditions or, more importantly, dry weather and heat during pollination, yield potential will be reduced further. Weather and crop development will be an ongoing story throughout the growing season.
The political climate and will to make changes to the 54 cent ethanol import tariff or 51 cent blending credit remains unclear. If the tariff was dropped altogether or the blending credit was suspended, corn could easily plummet by $2.50.bu or more. As of this writing there has been lots of rhetoric but no action. This issue is the single most difficult market factor to predict.
The chronology of important events that we are certain will transpire follows:
June 30th
| USDA Acreage and Grain Stocks in all Positions reports. | July 11th
| USDA Supply and Demand Report. |
August 12th
| USDA Supply and Demand Report |
From now through about July 20th the corn market will be sensitive each weather forecast revision that is seen as having potential to affect crop development and pollination.
The regular weekly releases of Crop Progress & Condition on Monday afternoons and
Weekly Export Sales on Thursday mornings have heightened potential to be market-moving events given the current situation.
Given the current tight ending stocks and uncertainty about weather for the balance of the growing season, it's likely that sell off breaks in the corn market will remain shallow until confidence builds in the final size of the '08 crop. Adverse weather could easily drive the market to new contract highs. Dramatic action regarding ethanol tariffs and/or blending credits remains the primary bearish threat.
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About the Author
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Jay Calhoun is a feed grain Broker/Analyst for Walsh Trading in Chicago. An Iowa native, Calhoun's background includes work in production agriculture and commercial grain. He has worked in the futures industry for 23 years, the last 17 in Chicago where he's best known for his daily Cornbelt Snapshot Tour broadcasts. The Cornbelt Snapshot Tour is broadcast every day at 7:35AM on WTV, Walsh Trade Voice can be accessed via the Walsh Trading website: www.walshtrading.com. In addition to the Cornbelt Snapshot Tour, the Walsh Trading Morning Meeting at 8:05 AM can also be accessed via the website.
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Special Message from Our Author
Are you listening? You should be!
Walsh Trading is pleased to announce the Walsh Trade Voice (WTV) 2008 Cornbelt Snapshot Tour report has begun. With quality first hand information you cannot get anywhere else, the Cornbelt Snapshot can be heard live at 7:35 AM, CST on WTV and in its recorded version once the live broadcast is completed. The 2008 Cornbelt Snapshot Tour features input from 8 diverse locations throughout the entire U.S. Cornbelt. Listen now!
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