New crop December corn prices have been sideways since early February. The range of trade has been bound, for the most part by $5.70 on the upper end and $5.20 on the lower side. At this time of year, it's a pretty sure bet this range won't hold. It's my opinion, unless the corn acreage number is a real bullish number, corn prices are likely headed lower with the low end soon to be penetrated.
The trade is expecting a corn acreage number near 95 million acres, down about two million from the original planting intentions. This is likely the number built into the market. It appears that the weather pattern, generally speaking for the crop, it nearly ideal. The developing crop is responding to heat in combination with continued rain. The percentage of corn in the good to excellent category will likely continue to increase during the balance of June and into July. The longer term forecasts do not indicate any problems associated with hot/dry conditions during July. Look for the majority of this crop to be pollinated by the end of July.
Many traders want to be bullish the corn based upon the possibility of a bullish quarterly stocks number. This number can certainly move the market. If it would happen to drive old crop corn prices higher, I'd consider this a bearish factor (toward new crop). The higher old crop corn prices go, the higher cash corn prices move, the less demand for corn over the long term. Exports would continue to dwindle, imports from South America would increase, the ethanol grind would slow and less corn would be fed to livestock. Basically, we're killing demand for corn.
Focusing on the big picture will have its rewards when attempting to determine what corn prices are going to do
this year. We become totally focused on U.S. acreage, weather, ending stocks etc. What about the bigger picture? On the back side of the "Great Grain Robbery" the world experienced a strong period of acreage growth. From 1972 to 1982 global harvested acreage increased by 243 million acres, or 13% to 2.1 billion. At the time Russia was the big buyer of wheat, sending all grain prices upward with acreage expanding in response to rising prices.
Following this expansion the world experienced oversupply, and global acreage actually contracted by 100
million acres from 1982 to 2002. However, the eight year period ending in 2013 has experienced another surge in global harvested acreage. Global harvested acreage has expanded from 2.1 billion in 2005 to 2.3 billion this year. This level represents record large harvested acreage. The U.S. share is 250 million acres, or 11%. REPEATING, RECORD LARGE HARVESTED ACREAGE AND THE U.S. ONLY REPRESENTS 11% OF THE TOTAL.
Looking closer at the data, during the recent acreage expansion, corn has led all crops with 77 million more acres slated to be harvested this year, compared to 2005/06. In addition, soybeans are in second place with acreage expanding by 43 million from 2005/06. In addition, if you add together soybeans, rapeseed and sunflower seeds, total oilseed acreage is up by 66 million.
Geographically, since 2005, not surprisingly South America leads the world with expanded acreage of 40 million. Surprisingly, at least to me, the former Soviet Union is second with 28 million new acres since 2005. India is third at 21.7 million acres with North America fourth, adding 18 million acres since 2005.
The point of my discussion is that we worry, perhaps, too much about what's occurring in our backyards (the Midwest) when we should be much more tuned into the world situation. The U.S. only represents 11% of the total harvested acreage. Should I really be concerned about the upcoming USDA acreage figure or should I just assume that two to four million was lost due to excessively wet conditions and move on?
If one takes into account "the big picture," it would likely be prudent to prepare for the strong possibility that corn prices will head lower, possibly sharply lower in the weeks/months ahead if the current weather pattern remains in place.
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