Nobody in the grains industry can understand why the complex has been rallying so hard? Food is energy and energy is getting expensive. Many are missing out of the great bull ride for 2006 - food and especially those crops that are massive energy users or can be directly used as an energy feedstock.
-------------------------------------------------------- A Look at 2006/07 Corn Projections 2/21/2006
Patrick Hayes
advertisement Today we will examine the updated estimates that the USDA supplied last week for the 2006/07 growing season. The USDA projected these corn Supply and Demand numbers based on normal weather and yields.
The corn market received both a bullish and bearish surprise. The bearish surprise was that the USDA only reduced planted acres 1.3 million acres from last year’s actual planted acres. The trade had expected more of a reduction. The bullish surprise was that even with the smaller-than-expected acre reduction, ending stocks fell to 1.726 billion bushels from 2.4 billion bushels in 2005/06. The reduction in stocks assumes good weather with a yield of 147.7 bushels per acre.
The implication of these numbers is that market participants better start smelling the coffee. The 1.726 billion bushel carryout is enough to give this market a harvest low of $1.80 to $2.00 on the December contract. The concern is what happens if weather gets in the way of yields. End users are taking care of their needs by buying 2005/06 crop ahead of time, which is smart. Any weather issue will cause the type of price volatility that has not been experienced in a long time. If the USDA is on target with all other projections except yield and weather causes a yield reduction to 130 bushels per acre, the market would see 2006/07 ending stocks fall to 432 million bushels, with demand at 11.495 billion bushels.
This is not your father’s corn market. This market is seeing demand far outpace supply (unless exceptional yields occur). The bull price scenario that I wrote about three weeks ago has another piece in place. I am not saying that corn is going to $7.00 per bushel; I am saying that an extreme bull market for corn prices appears more likely than any time since 1996. Expect price action to be violent this year.
I STRONGLY RECOMMEND THAT PRODUCERS FOLLOW THE LEAD OF OTHER MARKET PARTICIPANTS AND PAY CLOSE ATTENTION TO THEIR MARKETING THIS YEAR!
