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Today's Featured Article
It is certainly a busy time of the year for those that monitor the corn market. There is no shortage of factors that warrant attention, from the weekly crop conditions to the outside market influences and most importantly the weather. This week the USDA provided their monthly contribution for analysis.
The June 10th USDA Supply and Demand Report failed to provide any surprises that would break the corn market out of its mostly sideways pattern. The 2009 version of the Midwest planting delays has increased the debate regarding planted acreage and yield. The acreage debate will largely be put to bed later this month, when the USDA releases its final 2009 acreage report on June 30th. The debate regarding yield, however, will continue throughout the summer and fall. Last year's acreage debate had its focus on the state of Iowa. This year the entire Eastern Corn Belt has struggled to get the crop planted. Most grain analysts seem to be looking for the USDA to show that 1-2 million corn
acres will be lost this year due to these planting delays.
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In this week's Supply and Demand Report the USDA pegged the corn yield at 153.4 bushels per acre, which is down from their initial estimate of 155.4. In the 2008 June report the USDA reported a yield of 148.9, which is down from its May estimate of 153.9. The latter half of the 2008 growing season turned so favorable that they ultimately took it back to 153.9 in the final production report. Perhaps, it is with this in mind that the USDA was more conservative with its yield decline this year. In evaluating the corn yield this year one is faced with a tale of two corn belts. The Western Corn Belt had a favorable planting season and solid early
stands, while the Eastern Corn Belt has faced major delays. The World Agricultural Outlook Board took this into account when they analyzed yield data for the USDA. In their June U.S. Corn Yield Projection the Eastern Corn Belt including, IL, IN, MI, OH and WI, are assumed to be 19 bushels below the 162 bu. per acre trend, while Mid-South, including KY and TN, is assumed to be 17 bushels below 138 bu. acre trend and finally the Delta, including AR, LA and MS is 18 bushels below 149 bu. per acre trend. To counter these poor Eastern Corn Belt projections the Western Corn Belt and Central Plains must pick up the slack. To this end, the World Agricultural Outlook Board projects the Western Corn
Belt including, IA, MN, and MO to see yields 8 bushels above 172 bu. per acre trend, while the Central Plains including, CO, KS, and NE are assumed to have yields 8 bushels above 152 bu. per acre trend. Basically this means that, just as in every other year, a keen eye will be fixed on the weather as well as the weekly crop condition figures that are provided by the National Agricultural Statistics Service. The difference that this summer holds over most years is the potential for the 2009-2010 ending stocks estimate to fall below 1 billion bushels. That would push a US stocks/usage ratio, which already is projected to be the second tightest in the past 30 years, to an even more
uncomfortable level in the eyes of the trade.
The question becomes what does this mean for new crop corn prices? The easy answer is that it means that volatility will remain high as evidenced by the trade action this week. Corn values have alternated being .08-.10 lower this week with being .08-.10 higher the next day. Overall, corn prices will remain trapped in a somewhat wide trading range. Until the market can feel sufficiently comfortable that yield expectations can reach trend line projections, the downside for December corn futures should have support in the $4.10-$4.30 area. Meanwhile, the top side of the market will be determined by weather and crop conditions going forward. It is important to keep in mind, however, that in
the June 10th Supply and Demand Report the USDA slashed the expected feed usage figure by 100 million bushels. This is in response to poor to negative margins being felt throughout the livestock industry. This does not mean that December corn values cannot approach or exceed the $5.00 level, but it is unlikely to be able to sustain those levels without experiencing some demand destruction. I would expect that the top of the expected corn trading range for now to be in the $4.90-$5.10 area.
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 If you cannot view the Corn chart,
go here.
This Chart is from Apex Trading SystemTrade Ideas:
There
will be some attractive pricing opportunities this summer for
producers. However, these opportunities near or beyond $5.00 may be
somewhat brief. It is very important to review your marketing plan now
and refine your hedging strategies in order to take advantage when the
desired levels are provided. At present we are looking to extend
coverage in the $4.80-$4.90 area. Please give me a call to discuss any specific details of my trade ideas. I can be reached at 1.800.933.3996 or send me an email to scott.harms@archerfinancials.com
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM
Investor Services, Inc.
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About the Author
Scott Harms was raised on a grain and livestock farm in Forest City, a small town located in Central Illinois. He attended the University of Illinois in Champaign-Urbana where he received his Bachelor of Science Degree in Agricultural Economics in 1989. Upon graduation Scott moved to Chicago where he began working for Merrill Lynch Futures in their Agricultural Hedging Services area. After 10 years at Merrill Lynch, Scott spent 8 years at Prudential Bache Commodities before joining Archer Financial Services, Inc. in 2008.
Scott has specialized in grain hedging where he assists both producers and end users achieve their marketing objectives. He currently manages the Agricultural Hedge Marketing Program, which is a unique program that assists grain producers with their marketing.
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