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PM Report
Tuesday,
May 15, 2007
n
Recap
CORN:
Values
turning in an instructive reversal after USDA indicated national
corn planting progress above expectations Monday night. Values
perhaps responding to broader fundamental market concerns
regarding surging biofuels demand and long term inadequate US
acreage prospects. Overnight values sharply lower after USDA
indicated that 78% of the corn crop was planted bringing us fully
into line with the long term 77% average planting pace. Weekly
progress up 25 points.
Iowa
77% planted vs 90% normal.
Illinois
93% planted vs 83% average. Many now suggesting that USDA might
rethink their national average yield forecast after lowering it in
last Friday’s report as national planting catches up to average.
Trade will be looking for first weekly national corn crop
condition report possibly next Monday. A year ago the crop was
rated 66% G/E on that date. Last year the crop was rated from 68
to 71 percent G/E from the first of June until the first week of
July when crop conditions began to deteriorate. Trade noting
increased talk of developing drought in
Henan
and
Hebei
provinces in
China
, key grain growing areas. Trade also discussing the possibility
of initial developing dryness in parts of the northern eastern
US
corn belt. Precipitation has been lagging normal in northern
Illinois
and
Indiana
areas in the last two to three weeks.
Overall subsoil moisture supplies more than fully adequate
however. Well followed
Chicago
weather forecaster highlighting unusual frequency of 90 degree
days in
Chicago
this year. Trade
remains generally nervous over warmer than normal world weather
patterns to possibly threaten crop production this summer. So far
Chicago
temperatures have averaged 7 degrees warmer than a year ago and
the 16th warmest first part of the month in 137 years.
China
reported exporting 580,000 tons of corn in April vs only 40,000
tons last year. Cumulative
exports this year already 4.22 mmt with annual exports forecasted
at no more than 4.5 mmt. Cumulative exports 51% over the pace of
last year. Fundamental rejection today of Dec corn near 3.60 may
be more of a reflection of long term fundamental market forces. In
our Monday night wire we discussed the possibility that traders
may internalize the idea of a final planted corn acreage figure
near 89 million, down 1.5 million from the incredible forecasted
plantings in March. Trade may anticipate some moderate acreage
loss due to wet western conditions?? Incorporating this type of
yield expectation ahead of the June 29 Acreage report and
combining it with a 152.5 yield (the highest forecasted in August
ever), we would still find the trade projecting US ending stocks
no larger than 900 million bushels. While fully adequate, some
would see this as being close to minimum cash pipeline levels. In
a very broad sense, perhaps we are seeing the manifestation of a
realization that the intention to plant nearly 12 million more
corn acres this year (4 times more than any annual acreage switch)
may not actually solve the 07-08 supply demand balance and still
leaves us vulnerable to an extreme shortage of needed production
in 08 and beyond. In our work last night we highlighted the
possible need of 5 to 8 million more corn and bean acres needed in
08-09 to keep surging biofuels demand in balance. Barring record
favorable weather and yields this coming year, we would see this
long term supply demand arithmetic forcing the Secretary of
Agriculture to liberalize Conservation Reserve Program dropout
rules for 08 plantings. Interesting to review basic fundamentals
of CRP acreage currently idled.
Stone
Grain Recap
Conservation
Reserve Program Perspective
Original
Base Acreage
Corn
5.6 mln
Wheat
8.7 mln
Soybeans
5.2 mln
CRP
Acres in Corn Belt States (mln)
IA
2.0
MN
2.0
IL
1.0
NE
1.0
SD
1.5
MO
1.5
TOTAL
9.0
Acres
Maturing
2008
6.0
2009
4.3
Here
we see that we might need virtually all of the key corn and bean
acreage in central belt states to satisfy growing acreage and
production demands in 08-09. Any failure to open the CRP program
or any reluctance on the part of producers to rapidly plant this
acreage would find the
US
facing inadequate production potential in 08-09. Long term
climatologists continue to project a relatively neutral Pacific La
Nina situation. Some now forecasting analog situations that
resulted in both above and below US trend yield results. Drought
Monitor maps highlight the current regression of persistent
US
dryness back into the
Rocky
Mountain
regions. This very similar to the 2004 situation which eventually
resulted in a record 160 national yield. A comparable deviation
above trend on corn yields this year could find
US
yield at an incredible 166 bu/acre. Interesting to see new
Iowa
State
study suggesting that cellulosic ethanol from switchgrass or corn
stover would not be economically viable under any of their
scenarios. Still, President Bush calling for cabinet officials to
move forward on plans to quintuple
US
biofuels production by 2017, but still lacking a viable cellulosic
model?? Price action today in a very broad sense continues to
reflect market concerns over an out of control biofuels policy in
Washington that falls solely on the shoulders of a corn and
soybean based model that will require unlikely US acreage
expansion over time. Whether or not non
US
world production can expand at current prices to provide adequate
world supplies is yet to be seen. USDA clearly not forecasting
that in our first new crop world coarse grain projections last
Friday. Generally favorable US corn belt weather forecasted into
early June. New 90 day NWS weather forecast expected Thursday.
Trade reflecting on possible price scenarios if subtrend yields
are achieved this year. $1.00 a bushel plus ethanol margins would
find it quickly necessary to trade corn futures towards $5.00 or
more to begin any type of legitimate ethanol rationing process.
This could result in a rapid price realignment this summer
if any type of suboptimum weather is encountered.
SOYBEANS:
Values
trading higher as traders continue to reflect on possible
inadequacy of US planted acreage into 08-09 and beyond. Fund
buying interest continues to be stimulated by USDA 07-08 balance
tables that show a 50% decline in US ending soy stocks. Brazilian
real currency penetrating the 2 to 1 ratio further depressing
local domestic prices there. Trade realizes that we will have to
have a strong
Western Hemisphere
acreage expansion next year to balance world demand. 6 million
more
Western Hemisphere
soy acreage needed annually to balance previous long term demand
growth rate with the situation now further complicated by
biodiesel demand. Private trade now generally projecting USDA to
increase both soy exports and soy crush statistics by 15 to 20
million each in upcoming Supply Demand reports to pull US ending
stocks well below 600 million now. USDA reporting 32% of the
national soybean crop planted Monday night vs 31% average.
China
reported importing 2.65 mmt of beans in April vs 2.57 last year.
Cumulative imports so far at 15.6 mmt vs 15.0 last year.
Cumulative imports seen at 28.3 mmt this year vs 25.8 last year
may be overstated. Generally favorable
US
weather pattern forecasted but trade noting developing dryness in
some
China
soy production areas. Some see longer term USWestern Hemisphere
soy acreage situation as being virtually “out of control”.
Particularly if Secretary of Agriculture does not liberalize CRP
dropout rules for plantings in 2008.
Mediocre northern
Brazil
soy production economics may not stimulate radical acreage
expansion needed there over the coming years. Again it is
interesting to consider the fundamental supply demand statistics
related to
US
biodiesel production capacity. If current production capacity
planned today is eventually constructed, only a 25% utilization of
that capacity in 08-09 would wipe out
US
soyoil supplies completely. Biodiesel margins must continue to be
squeezed to permit only a marginal utilization of planned capacity
to maintain any balance in US veg oil supplies.
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