This is a sample entry from Craig Turnerâ€™s weekly market analysis newsletter, Turner’s Take.
The WASDE increased ending stocks to 903 million bushels for 2011-2012 corn, up from 851 previously. The USDA has the July Corn yield at 146.0 and cut demand over 1 billion bushels. It is important to note what the yield is as of July 1 for the USDA. One can make the argument that since July 1 we have lost more bushels and we are probably closer to a 140 yield now.
With a 146 yield and the reduction in demand due to higher price, the USDA has a carry out of 1192 million bushels. That puts corn prices around $6.00. As yields come down, prices increase, and demand is rationed. Below is my table for yield 140, 135, 130, 125 and finally 120. As you can see in the table below, as yields decrease, the US will start to import more corn where possible, feed use for corn decreases, ethanol slightly dips, and exports decrease. The worst case scenario is a yield of 120. A 120 yield would be considered a complete disaster. A 120 yield would go down in history as one of the worst US droughts for crops we have ever seen and corn could go to $9.00/bushel.
As the weather destroys crops and lowers yields, there is one big wild card everyone needs to understand. That wildcard is ethanol. At any time, the EPA can reduce the ethanol mandate and demand can be reduced drastically. Ethanol makes up about a 1/3 of all corn use for US production. The last row to the right of the table below shows a 120 yield with no ethanol mandate. If I take out all the ethanol, I can boost feed usage and exports to highs we have not seen since 2005. Ending stocks would be over 1800 million bushels and corn would probably be at $4.00. Just something to keep in mind as the weather continues to erode corn yields.
US Corn Supply/Demand Balance (Sept->Aug Crop Year) in Million Bushels
|USDA||USDA||Turner’s Take||Turner’s Take|
|Turner’s Take||Turner’s Take||Turner’s Take||Turner’s Take|
I have good news and bad news. The good news is Soybeans can still be saved. We have about a four week window where the weather can improve. If we get much needed rain then it’s possible the crops will stabilize. The bad news is there is no margin for error. Corn had a very big margin of error on the production side because we were expecting a record crop, due to an enormous amount of corn acres combined with a very high expected yield. Soybeans do not have that same margin of error. Soybean stocks are tight and they lost acres to Corn this year.
The WASDE has this year’s beans ending stocks at 170, which is a little higher than we expected. We have seen a lot of exports lately for Soybeans and we feel 130 to 150 are a more accurate ending stocks figure. The USDA lowered the Soybean yield to 40.5. This leaves us with an expected carryout for new crop at 130. This is very, very tight for Soybeans. We can’t lose acres or yield going forward. In my table below, I have yields for 40, 39, 38 and 37. A 37 yield for Soybeans reflects a severe drought for the crop. At 37 yield Soybeans are $17.00 and we have no beans for carry out. I had a hard time reducing beans under 1600 for the crush and was only able to price ratio for exports and then boost imports to keep the balance sheet from going “negative carryout” (which obviously can’t happen).
|USDA||USDA||Turner’s Take||Turner’s Take||Turner’s Take||Turner’s Take|
Try Turner’s Take Market Alert – for 30 Days
Turner’s Take Market Alert – Trial - Turner’s Take Market Alert includes Daily Updates and an Intraday Trade Recommendation service for Daniels Trading clients.
Turner’s Take Market Alert – includes an email newsletter subscription.
Turner’s Take Market Alert – trial lasts 30 days.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.