Corn Rally

[charliep]

Just a note to highlight the impact of Friday's USDA crop acreage forecast. The markets job now will be to convince farmers to switch a couple of million bean acres to corn. Weather will also be a driver.

Pro and con of the news.

Pro - Ethanol will use up just over 2 bln bushels (about 20 % US corn production). Will keep the market nervous about weather/impact on yields.

Con - Corn over $2.50/bu is expensive and with normal to about average yields will not hold. I would be selling this market (December) as a hedger realizing a cross hedge for barley).

[TOM4CWB]

Charlie;

I hope you are selling using options...

If there are any weather problems...

WOW... will corn take off!

[charliep]

Are you suggesting buying a put? Can't argue against although just selling futures may work just as well with a stop that is equal to the cost of the put.

I note that all is not negative going into this summer. Oilseeds have the biggest fight to higher prices with bio-diesel/Europe (too soon North America) the positive. Feed grains are the biggest wild card - anything that threatens production will send the US corn market wild given the demand from ethanol. Wheat has the most positive fundamentals.

What are others thoughts on the markets?

[silverback]

Thought: It would be a good time to be in another line of work.

[clancey]

statpub.com included the following comment in today's grain news update:

Light (trading) activity and worries a sharply reduced corn area in the United States would push prices to level which further limit demand had the opposite effect, helping trigger a break in prices yesterday. This was compounded by talk the market was technically overbought, causing some traders to sell long positions.

Even so, analysts at the Chicago Board of Trade argue new crop markets should see "solid underlying support as the market needs higher prices in a last ditch effort to attract increased planted acreage to the corn market.

"If not, the market is likely to be extremely sensitive to weather developments this season, as above normal yields would leave the ending stocks at a comfortable level, but even a slight reduction in yield from trend could leave the market is in a very tight situation.

"Assuming a demand base of 11.495 billion bushels and a trend line yield of 147.7 bushels per acre, the new plantings forecast would trigger an ending stocks estimate of near 1.08 billion bushels as compared with 2.351 billion this year.

"If plantings jump 1 million acres from Friday's estimate, ending stocks would come in near 1.206 billion bushels. While this sounds like a comfortable level, a 10.4% stocks to usage ratio would be the 4th tightest in the last 31 years."

[crusher]

And a U.S. corn rally is going to help western Canada farmers how? Isn't that an export market where only the CWB has access and use ugly basis to compete (see CWB FPC wheat).

Your corn hedge idea looked good up to January. If you charted corn vs. WCE barley there was a pretty strong correlation. Barley doesn't seem to be responding even with a weaker dollar.

Still not excited about putting in a crop yet. Planning based on crop insurance is pretty depressing.

[charliep]

I'll leave the CWB issue alone. All I know is the US is a large consumer of feed grains with ethanol additional demand. With the current profitability in US ethanol industry, this industry can afford to pay $3/bu plus. Not sure on the livestock side. Any drought will pull Canadian product south. Many of the major US corn importers are also expressing concern - additional sales opportunities for feed wheat.

The question is how western Canada responds to this.

Somewhat premature as the crop is not in the ground but something to note.