Happy Friday the 13th. May all your irrational superstitions haunt you today.
The USDA monthly Supply and Demand Report released on Tuesday was more bearish than expected. Yield was increased from 168 to 169.3 bu/acre which was more than expected. Export estimates were reduced by 50 million bushel and ethanol usage estimates were reduced by 75 million bushel. In the big picture, corn supply expectations increased and demand decreased resulting in much larger corn stocks carryout. The market responded with an $0.08 drop in futures prices.
The ethanol report came out Wednesday and was slightly bullish but long term ethanol production looks a little shaky. Even though the consumer is driving more miles, the number of barrels of gasoline that they use is not increasing as fast as expected due to better gas mileage in vehicles. China is considering ramping up ethanol production in order to use old out-of-condition corn that is in storage and could be a major competitor in the ethanol market.
Farmers across the US have put their corn in storage and are seeing if they can wait out the market. Some think that the transition from El Nino into La Nina over the winter will result in drought conditions which could create bullish price conditions. Basis is strong and has the potential to get stronger if farmers continue to hold on to their crop. However, if there is a rally in the futures that spurs producer selling, basis could quickly fall apart.
The strong value of the dollar and its impacts on exports is the US’s worst enemy. When compared to the Russian Ruble and Brazilian Real, the value of the dollar is just too high for any country to be interested in buying any commodity from the US. The USDA reduced export estimates in its Supply and Demand report released on Tuesday as a result. Weather is fair so there is no new news to spur a rally.