Play Turner’s Take Podcast Episode 231

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In this week’s podcast we go over the May WASDE and what it means for new crop corn and soybeans. The report came in close to expectations and we saw some short covering at the end of the day.  We also saw spread unwinding as traders took profits.  The report confirmed our bearish view on corn this year.  It was neutral for soybeans and gives bulls hope for possible rallies this summer.  This WASDE sets the tone for the rest of the season.  We think it means sell the rallies in new crop corn and buy the dips in old crop soybeans.  We thought wheat was bearish across the board and selling the Dec contracts on rallies makes sense.  To find out more make sure you take a listen to Turner’s Take Podcast!

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WASDE – CORN

Old crop corn ending stocks were better than expected as the USDA only reduced ethanol demand by 100 million bushels to 4.950 billion.  We think it should be at least another 250mm lower.  Based on the pace of corn for ethanol demand, energy prices, and the fact the marketing year ends Aug 31, we think the corn for ethanol demand number will be closer to 4.5 to 4.7 billion.  That means old crop corn carryout is most likely 2.3 billion without a big increase in exports or feed in the next few months.

New crop corn ending stocks were just over 3.3 billion and the stock/usage ratio is 22.4%.  Any time the stock/usage ratio is over 20% you have to figure new crop gets to at least $3 by harvest, if not lower.  In my table below I have corn acres at 95.5 million, which is 1.5 million lower than the USDA.  However, I also have ethanol demand lower.  The lower acres and the lower ethanol demand cancel each other out and we are still around 3.3 billion carryout.

Notice how new crop corn has very high feed at 6 billion.  Not good for feed wheat.  That is a lot of corn we now need to see go to feed.

With a 3.3 billion ending stock estimate, it takes a lot to move the markets.  A 1 bushel increase/decline in the national yield only adds/subtracts 90mm bushels of corn from the ending stocks.  Yields have to go to 175 (-3.5 bushels) to get the carryout below 3 billion. If we have a great crop and the yield is 182 then carryout is 3.6 billion.  When a +/- 3.5 bpa is the difference. between 3.0 and 3.6 billion carryout, that means the spring/summer weather rallies will be muted..

I still like selling deferred futures, selling calls on rallies, and bear spreading corn.  I’ll have some ideas in my client emails.  Those who want to get more involved please call me at 312-706-7610.

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Corn Supply & Demand Table

WASDE – SOYBEANS

Old crop soybean exports were lowered 100mm bushel and that increased ending stocks to 580mm.  Not great but not the end of the world.  China is starting to buy more soybeans so there is a chance the old crop marketing year exports actually increase between now and Aug 31.