No matter whether you’re a trader, producer, end-user, or maybe just a casual observer, and regardless of whether you’re bullish or bearish, it’s likely your primary focus in recent weeks has been on the corn market. Tight supply and wide-spread uncertainty led to anxious anticipation of USDA’s May WASDE report: ‘10/’11 updates coupled with initial ‘11/’12 estimates provide some type of short-run baseline from which the market can work. The reports were especially timely given the preceding week’s commodity sell-off.
This year’s carryover was adjusted upwards to 730 mil bushels. Meanwhile, USDA’s first stab at next year’s carryover put ending stocks at 900 mil bushels. However, as alluded above, USDA’s numbers serve as a guide. The reports generated a large amount of skepticism among analysts. Regardless, carryover is precarious; absence of buffer within the complex means the market will likely be very active in the weeks and months to come. There remain a number of uncertainties going forward with old-crop and new-crop stocks more tightly coupled than ever before.
First, old crop: threat of supply depletion is very real. That is, some end-users may potentially have trouble securing inventory in the late days of summer. As such, the market must work higher to ration demand to avoid unforeseen supply interruptions (not to mention some logistical challenges that may endure because of flood damage to grain handling and transportation infrastructure). Moreover, the longer that marketing rationing is delayed the more aggressive summer procurement scurrying will have to be to match inventory with end users. That said, trade will actively position around and look to USDA’s June 30 grain stocks report.
Second, new crop –this year’s planting endeavor is critically important with acreage and yield being the primary focus in the weeks to come. The matter of acreage is especially tentative given this year’s weather scenario. USDA’s WASDE report did NOT ratchet back the agency’s initial spring acreage projection. Therefore, ‘11/’12 carryover is predicated on farmers planting 92.2 million acres. However, USDA did dial down their initial yield estimates. Those discrepancies invite several questions going forward. One, will all those acres actually get planted? Two, given the delayed planting dates will harvest rates run at historical averages? It’s one thing to get the crop in the ground, it’s another to get it harvested; late planting dates also create problems on the other side of the growing season.