November 10, 2011
By: Craig Haugaard, Grain Origination Manager

CORN: 3 higher

After yesterday I am thinking that we may soon be drawing a chalk outline around the bull’s body and blowing taps.  Here is what I spent last night thinking about.

1)  I read an article in BioFuels Business yesterday that quoted a study by the USDA Economic Research Service (ERS) that “a ton of DDGS can replace 1.22 tons of feed consisting of corn and soybean meal in the U.S.”  For a long time folks have bandied about the idea that you get roughly 17.5 pounds of DDGS from a bushels of corn so you in effect get back a third of the original corn bushels.  The ERS study added that “the amount of feed (corn and soybean meal) replaced by the DDGS represents nearly 40% (on a weight basis) of the corn used in the associated ethanol production process for a given crop year.”  That may account for at least a portion of the reason for the 100 million bushels feed reduction in yesterday’s report.

2) Outside markets.  Europe is a jacked up mess and their economic woes had the dollar sharply higher yesterday.  This is either going to be a slowly developing story in which they bleed to death over time and an implosion in which it spins out of control rapidly but probably won’t end well either way you go.  For now our currency once again appears to be the safest thing on earth which I find frightening in and of itself.  This tells me the dollar may remain strong and that is bearish commodities.

3) On the flip side we have that nut job in Iran that wants to usher in the return of the 12th Mahdi and figures to jump start that job he should wipe Israel off the face of the earth.  We now have the IAEA’s report that Iran is on the verge of having nuclear weapons.  This has Israel talking about a pre-emptive strike and frankly if they don’t IU would be shocked.  So. Let’s assume that happens and crude oil goes to $200+ a barrel.  With the corn/crude relationship I would think this would be bullish but I also assume that $200/barrel crude would plunge the world into a depression and that is probably bearish.

4) Ok, back to the corn fundamentals.  On the international front we have the size of the crop in Argentina and China both projected to increase.  I think we will find that American farmers are not the only ones that can compute return per acre numbers and see an increase in corn planting where they can.

5) Finally, for the purpose of this discussion we have to start thinking about the 2012/13 supply/demand tables.  Let’s take the 2011/12 carry-out at face value and leave that at 843.  Now, let’s assume that we will plant 3 million more acres next year.  Let’s further assume that feeding will remain unchanged but that we will see an increase in ethanol use as well as in exports.  Finally let’s look at a several production numbers starting with the 165 that is roughly where trend line yields would be, moving to 161 which is the number used in last year’s USDA AG Forum, then to the 158 that they release as a projected yield in the May 2011 USDA report and finally to the 146.9 bu/acre that we had in yesterday’s report.  If you do that the results are as follows:   

If the trade starts thinking about the kind of numbers that were bandied about earlier this year we could drop a buck a bushels pretty quickly.  If that thought turns to reality we could be even lower than that a year from today.  I know you guys want to figure out what you have in the bin right now but you really ought to spend a little time thinking about the year that is coming down the pike and how you want to be positioned for it.

SOYBEANS: 2 higher

We have been talking for some time in this space about the lagging exports so yesterday’s reduction of exports by 50 million should not have caught any of us by surprise.  The stuff I wrote about the outside markets in the corn comments certainly apply to beans as well.  I suppose now we will turn our attention to South America and eventually to projected planted acres for 2012.  Interestingly enough Informa is going to take a shot at projecting 2012 planted acres in a report that will be coming out on Friday. 

Let’s start with South American.  Yesterday’s report pegged Brazilian production at 75 MMT, up 2.5 MMT from the October report.  Brazilian analysts that I am seeing all seem to have their crop pegged at 71.5 to 73 MMT so it will be interesting to see what the truth will actually be.  For now I have to note that the weather couldn’t be much better so they are getting off to a wonderful start. In Argentina, where corn production is going to be up the USDA is projecting that bean production will be 52 MMT, that is 1 MMT less than what was projected in October but worth noting that it is 3 MMT than what was projected in October of 2010 for the 2011 crop.
As far as 2012 planted acres in the USA go the conventional wisdom seems to be that they will be down.  Right now corn is king and I would expect to see acres shift further that direction in 2012.  That could make it interesting.  If we reduce planted acres by 1 million and have a 41.3 bu/acre yield like the USDA is projecting for this year we would end up with about 3210 to play with.  Our total use in 2011/12 was pegged at 3080 so even if demand didn’t increase, and that is a long shot, we would have a 130 carry-out. It is way too early to project with any degree of certainty how this is going to go but it could be an interesting ride.

WHEAT: 1 higher

Yesterday’s report projected that HRW exports will be down 30 million from previous projections while HRS will be up 30 million.  That probably explains the spread between KC and Mpls. In yesterday’s trade and I suspect that Minneapolis wheat will continue to be the strongest of the three.  The report also raised wheat production in the FSU by 2 MMT so I suspect we will continue to see the Black Sea blue light special continue.  I really don’t have anything else to say about wheat.  It doesn’t look very good and will probably continue to have its price direction at least somewhat affected by corn. 

The information contained above was taken from sources which Wheat Growers believe to be reliable, but is not guaranteed by Wheat Growers as to accuracy or completeness and is made available for information purposes only.  There is a risk of loss when trading commodity futures and options.