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Honored Advisor

The pig is moving through the python

 

"we should be very close to the point of maximum bearishness in the corn market

We're going to have 2.273 byn on hand come Friday morning.....as compared to 1.737 byn on hand a year ago on Sept 1

We grew 15.148 byn last year....add in the 1.737 byn and we have 16.885 total stox.....take off 1.2 byn per month for various usages, and that says we had** 14.485 ** byn bushels on hand Nov 1 of 2016

 

If we grow a 166.5 bpa crop this year, that is 13.900 byn....add in the 2.273 byn carryout and we have a total of 16.173 byn.....now back out the same 2.4 byn usage for the first two months of the marketing year and we will have ** 13.773 ** billion on hand come November 1, 2017

 

712 million bushels less than at the same time one year ago.....

about the only thing that can keep this from being the bottom is a virtual collapse in US corn exports

 

Wait until I unleash my ** solution 2018 ** !!!!!"

 

Ray Jenkins

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Re: The pig is moving through the python

Nice analysis, Ray.   In addition, there is over 1billion less world corn carryover thus far this year than last.   Ukraine may be lowered.   China and US Ag Attache has said China's corn crop is about 210-211, which the USDA has stubbornly stayed with 215.   China has sold 30mmt out of their reserves, has exported 10x the ethanol this July as they did last year's July and put an import tax on our DDGS.   Their corn price is around $220/mt or $5.50, if I have read the analysts correctly.   Their usage is put at 238mmt and their reserves are put at 20mmt lower?  First question-why can't we get some of this ethanol business?   Secondly-when is the USDA going to lower China's carryout by 10mmt, or will they?   Lastly-if China has displaced all of our DDGS with their own and exported all that ethanol-how much more corn did they use up?   Between 2014 and 2015, China's corn usage went up 15mmt.   Between 2016 to 2017, the usage went up 15mmt.   That was before the DDGS import tax.   Between 2016 and 2017, their usage is going up 8mmt?   With the price difference, their merchants must be lobbying for more imports as I think we can put corn into China for $2.50/bu fob. I am anxiously awaiting the 2018 numbers

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Honored Advisor

Re: The pig is moving through the python

"

What if things are not what they seem...

 

 I had been contemplating his exact point the last couple of weeks, and further, taking inventory of the various bullish arguments that have seemingly been swept under the rug since the August S&D. I thought it might be worthwhile to try and add some wattage to Ray’s light at the end of the tunnel. This is certainly through the lenses of rose-colored glasses, but I tend to think some of the probabilities here aren’t as low as the market would have you believe…

 

Keep in mind when we see these huge world supply numbers that roughly half of all those are in China. Whether they exist or not is hotly debated. But whatever the case, those supplies are not readily available in the export market. Theoretically, due to the delivery mechanism, it is the export market which drives our futures market…

 

Wheat – it has to start with wheat. WASDE is always quick to adjust up, slow to adjust down. All we hear about right now is the huge carryover and the big Russian crop. Remember, they’re logistically capped on exports. There are downward revisions coming in the US, Canada (Stats Canada coming out this morning), China, Australia, Pakistan, India, EU, and likely Brazil and Argentina. It is very possible the world wheat balance sheets are 50mmt or more overstated. That wouldn’t necessarily make the balance sheets OMG tight, but we do possibly have an extremely tight situation developing with high-pro wheat. So… it is possible that wheat may need to stay out of the feed bunk for a while, and maybe the higher protein classes will have to work to get some acres back from corn and beans.

 

Corn – this has been a masterful smoke and mirrors show. Minnesota may be the only state remotely close to the current state yield estimates. The August report confirmed that stands are down. You just don’t add bushels after a hot/dry June/July with a cool August. Damage was done in the west, August just stopped the bleeding. And then simply due to bad timing, high heat right at pollination caused issues even in the east. And where it was too wet, it is now too dry, and poor root systems and lack of N are shutting things down early. This crop is a billion bushels overstated. Any extra we may have had for export has been booked now by Mexico. Corn for export off the Black Sea is way down due to drought in the region (making room I suppose for a few more wheat exports). And at some point we’re going to figure out that Brazil needs to keep back a big chunk of this huge safrinha crop for domestic use because their full season corn acres will be way down – due to increased regulations regarding second season soybeans. This export market has lulled importers to sleep and is going to catch some people completely out of position (but not Mexico, that guy is good!). I’ve seen the argument that tight ethanol margins would ration corn usage pretty quickly, but the coming high cost of meal should drive DDG demand and support ethanol crush margins…

 

Beans – this is not the finishing weather beans needed. Rains in the west helped add some bushels to a crop that was already hurt, but the center/east has gone way too cool/dry, and there are lots of reports of beans calling it quits for the season all across the belt. Further, there are estimates that Dicamba drift has affected well over 15m acres of beans. 44bu/ac was the de facto national yield ceiling up until the last three years, now it would be considered a disaster. Think about that. A 44bu/ac yield would have tied the national average record just three years ago… this year, on expanded acres, it would incite a rationing market. Moving forward, guys don’t like to plant beans on beans. After the big acreage shift this past year, beans are going to have to fight with corn and maybe high-pro wheat for a seat at the acreage table. And if this bean crop is short, fight they will. Even with more full season beans in Brazil, US soybeans can’t give back very much of the acreage they have annexed in recent years. Some want to argue that export demand is overstated for next year, but one has to remember that Chinese usage was actually lower this year than it would have been due to the forced movement of hog facilities away from the cities and waterways.

So… when South America runs into weather issues, we’ll all be bowing at the feet of the "fork" guys as corn and beans head to their $6 and $15 target objectives! Smiley Happy

 


A little longer term… current EIA S&D models are pointing to significantly higher crude oil prices in less than 5 years. Current prices have not allowed for the exploration and development of new deep well supplies. Given the schedule of known expiring supplies and demand growth out of Asia, they foresee a supply shock that will likely take crude oil to new all-time highs. Let me repeat, within 5 years… by 2022. Under this scenario, global demand for ethanol is just getting started.

 

And lastly… if all the worlds’ fiat currencies are going to zero, then mathematically, in terms of those currencies, your corn, wheat, and beans will be worth infinity. Smiley Happy"

 

Lodi

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