Corn bulls remain hopeful... waiting for the USDA to dramatically lower total U.S. production. Rember, this will be the first one this year that uses actual field surveys. The average trade estimate is looking for a yield of 178.4 bushels per acre vs. the current USDA estimate of 181.8. Perhaps a bigger question will be the USDA's current view of "harvested acres"? Currently, the USDA is using 84 million harvested but there's talk that number could ultimately be trimmed by -1 to -2 million by year-end.
On the demand side of the balance sheet, most all are in agreement that corn used for ethanol will be trimmed and exports bumped higher. Bears want to argue that feed and residual will be reduced while bulls think it could be stronger than forecast. Bottom-line, production is going to be trimmed. The question is by how much?
As a bull, I think demand is going to increase. I actually think demand could continue to increase in the days and weeks ahead. The USDA had ending stocks forecast at 2.765 billion bushels and the trade think that will get lowered to 2.46 billion. I think it could be more than that and closer to 2.3 billion bushels. I could even make an argument that by year end we are closer to 2.0 billion bushels. If we could get to sub-2.0 billion bushels then every weather worry or production hiccup will clearly carry more risk-premium.
From a global perspective, new South American production numbers will be in play which will more than likely be a bit bearish, but we should also see a reduction in Ukraine corn which I suspect will offset the SAM gains. Let's also keep in mind, we have a La Niña weather pattern coming into play so there are no guarantees for cooperative weather in late-2020 or early-2021 for South America.
I'm not getting overly bulled up, but if we can keep a strong demand story working and continue to chew down ending stocks, weather risk starts to become a much larger dynamic. If at the same time the funds are more interested in being long commodities then perhaps we have a reason to trade back north of $4.00 in the not so distant future. Keep in mind, this is what I'm hoping happens and my reason to be optimistic. But as my grandfather would always say, "shit in one hand and wish in another... let me know which one fills up faster." He didn't like it when I was overly optimistic.
Soybean traders are eagerly waiting on tomorrow's USDA numbers scheduled to be released at 11:00 am CST. The trade is thinking the USDA will reduce its yield estimate from 53.3 down to 51.7 bushels per acre. Personally, I'm not so certain and worry bulls could be a bit disappointed. Most in the trade are in agreement that demand is heading higher, with probably both crush and exports increasing. The USDA had ending stocks forecast at 610 million but the trade is now thinking more like 470 million, which makes the market much more interesting. I'm actually thinking we could be sub-400 million by yearend, perhaps even lower.
Like I mentioned in the corn comments, South American production estimates will also be in play in this report, which could be record large and keep world stocks ample creating a bit of a headwind. The funds are substantially long so with everyone looking for a bullish report I worry that any disappointment could create a knee jerk reaction to the downside.
As a spec, I will be looking to add to my bullish position if we get a sizable retracement. I will not be adding on a bullish number. As a producer, I would get yourself in a very comfortable position that allows for easy sleeping. If you didn't like the way you were feeling emotionally or psychologically with prices down around $9.00 now is your chance to ease the pain and reduce some risk. Only you can decide your pain tolerance and risk.
I've personally reduced my risk-taking a ton the past few years. Michelle and I remember what it was like to have no money and don't want to go back there so I've throttled back on some of my risk-taking. I'm not saying it was the right move or the wrong move financially but it was best for my psyche! Don't let people decide the risk appropriate for you and your family. You have to step up and make that call. It ain't easy leading but it's our responsibility.
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The opinions of Kevin Van Trump are not necessarily those of Farm Progress.