Taking a look at the “what if” of 2017, one bright aspect is that it is getting harder to build an argument for growing ending stocks.
The planting season is knocking on the door for most and underway for some. Will the April WASDE bring in some big changes in the markets?
This time last year the spring rally of 2016 was getting underway! Corn’s fresh contract low was a few days in the mirror with soybeans nearly 50 cents off their lows as bearish Quarterly Stocks & Perspective Planting report was overridden by the fear of what was spelled out to be the next drought of the century! This time around; corn remains stuck in a sideways trade as it bounces along while soybeans appear to be giving into the pressure that South America has provided. From a fundamental stand, this WASDE report isn’t likely going to tell us anything that isn’t/hasn’t been known for some time now and shouldn’t come as a surprise to anybody, unless there is a surprise…
The average trade isn’t looking for much changes in the US corn side of the picture. The March WASDE set the US ending stocks at 2.320 billion bushels and following the Quarterly Stocks report, most see that number growing some with an average trade estimate of 2.345 billion bushels. Not much to see here, however, South America will definitely be in the minds of traders. Brazilian production estimates are seen climbing to 92.5 MMT (million metric tons) from 92.0 with Argentina growing to 37.8 MMT from the previous 37.5. Still not much to see as the adjustments are mostly minor, however, they are compounding the global issue that has daunted US markets; massive inventories.
The average trade sees global stocks tomorrow near 222.1 MMT and surpassing the current record estimate of the last WASDE’s 219.6 MMT. With Brazil and Argentina’s combined production estimated near 130 MMT; far beating 2015/16 production of 96.0 MMT and 114.75 MMT in 2014/15. Add in the massive US crop and we get the environment we have today; sideways trade and little reason to change for the time being or at least until the “mindset” of the market finds a reason to change.
What could cause the market’s mindset to change? With planting season on the doorsteps, traders will eventually need to shift from “what was” to “what will be” and then the markets may have something to talk about. What could that be? Will 2017/18 be any better or more of the same sideways trade? If the America farmers swing and hit another home run crop, the fundamental outlook isn’t much to get excited about.
Taking a look at the “what if” of 2017, one bright aspect is that it is getting harder to build an argument for growing ending stocks. Being pessimistic on demand and cutting US exports by 225 million bushels due to a large crop in South America; a near trend line yield of 171 bushels per acre and harvestable acres of 83.0 million still results in a net decrease in the US ending stocks by roughly 120 million bushels. Not to discredit the ability to grow a nationally averaged crop of 171 as it has been done before; the likeliness is decreasing more each year we go without any kind of weather-related production issues. However, getting the bearish side out of the way; working with the same previously stated assumptions, a yield of just 173 equates to a minor increase in ending stocks so needless to say, a repeat of last year’s 174.6 would not be supportive to the outlook.
However, any kind of production concerns or even a less than perfect growing season could spell something dramatically different. A national average yield of 167.0 brings ending stocks down by roughly 450 million bushels with a 160 dropping ending stocks nearly 800 million bushels! Then a near repeat of 2012 and a yield of even 140 bushels (2012 yield stands at 123.1) results in a net negative inventory and would require supply rationing.
The silver lining appears to be that while the fundamentals are poor, they at least have stopped getting worse for the time being. With a market being indulged in bearish news, the markets could be satisfied in a 25 cent trading range and may stay so even after this report. Concern remains on exports and will be carefully monitored by the trade as there is plenty of outstanding sales yet to be shipped.
With prices so closely trading to many producers break even, are you prepared to pull the trigger? Last year’s marketing opportunity came and went faster than most could make a decision much less pull trigger as prices quickly retreated back below breakeven. Are you prepared this time? How have you prepared? Marketing is a team effort in almost all cases and can be supported with a marketing advisor who has a primary focus on the markets while you wear many more hats.
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