Supply/demand report and lock-limit up corn 1/12/2007
Bob Utterback
Today’s supply demand report was a bullish shocker because it reduced corn stocks down to 752, which is well below any trade expectation. Going in I really thought I was pushing it suggesting 875 carryover. The problem that’s developing for the market is we are seeing stocks decline at a time when domestic and world demand is forecasted to explode due to ethanol production. The mission of the market now will be to assure at least 8 million—preferably 10 million—additional planted corn acres. This will put the primary period for a price high between the March supply/demand report and the first of April after the March acreage report.
The big question now is how high it will have to go to ration usage. The sharply higher gap price action seen on the charts now suggest you could see a move equal to the September to December high. Bottom line, we are now at risk of testing the 1996 highs for old crop corn.
Implications: All feed hedgers are at significant risk. Focus on trying to buy July corn at $4.15 to $4.10 on any correction next week. The market is now going to bull spread. We have recommended the placement of a lot of hedges in the July 2008 and they will remain there until we get closer to the April to early May time period. We would not be surprised to see the September 2007 corn go to the 1996 high premium of 50¢ to 60¢ over the July 2008.
At this time, we are in no hurry to extend coverage of corn. We suggest you pull your orders to sell any additional inventory until we get closer to March.
If you have any questions or would like to read more of my daily recommendations regarding reownership or marketing strategies for the 2006 marketing season, e-mail me at [email protected].
