Corn prices put in new recent highs last Tuesday, and, in the process, made a run at the all-time high just a fraction of a cent under $8 on the July futures.
When we failed to make new highs, we broke sharply for the rest of the week, looking for insight as to where prices should be.
On the move up, the December futures put in a high of 7.77 on Tuesday and 7.75 1/2 on Wednesday. We finished 29 cents lower for the day, however, on Wednesday, Aug. 31, and have struggled since.
We finished the Tuesday morning early session at 7.54 1/4, after being nearly to 7.38 last week once.
This is just a blip on the chart if you look at December for the last year, however. The chart looks bullish until it breaks hard for a few days, and that has not happened.
Our short supply for the old crop is leading into fundamental numbers that make us think the tight supply continues for the next year. Carryout is historically low, and projected to stay that way.
So, where do we go from here? Michael Reginelli of Advance Trading put on two outlook meetings for Town and Country last week. I attended the Friday morning session in Ashland. There, I heard Michael bury me with statistics that seemed pretty bullish.
He told us that we have been very volatile, and that, “volatility will not go away anytime soon!”
He did pose the question that should haunt those who think there is no reason to sell near the historic highs: “Is the bull bulletproof?”
Reginelli concentrated on supply and demand tables and the resulting stocks-to-use statistics to demonstrate how tight me are, especially for corn.
Using the USDA August yields of 153.8 bpa, we get a 714 million-bushel carryout at the end of the 2011-2012 production year. This represents just a 5.4 percent stocks to use ratio. Five is very tight, as it is rare to be less than 10 percent.
Add to that the idea that private firms think the yield number is still too high, and you get more bullish. Talk is of 147 to 148 bpa, which tightens things up even more.
This is a year when the final production report, in January, could vary greatly from summer numbers, according to Reginelli. He showed a chart that detailed the differences historically between USDA August reports and January ones. That variance was from plus 5.6 percent to minus 6.5 percent.
Reginelli made a point that we are now using over 5 billion bushels of corn in ethanol production. For the first time, that use is surpassing the use for domestic feed.
The high cost of corn is forcing high use of wheat for feed, and livestock numbers are suffering. In particular, egg sets are down, and we have to worry that chicken feeding suffers.
Significantly, however, the ethanol production is leveling off just above 5 billion bushels. We have climbed steadily from the 3 billion of 2007-2008, but now produce more than enough to get the gasoline up to 10 percent content of ethanol.
Farmers at the meeting expressed concern that the blenders’ credit that the government pays would go away, hurting ethanol producers. Reginelli reminded the group that the subsidy went to the oil companies who are doing the blending, not the ethanol producer.
One negative note was expressed at the meeting by this writer. Reacting to the bullish attitude and the comment that Reginelli made expecting new highs over $8 and up, I reminded the group of one sure sign of a market top — when everybody agrees it must go higher!
I continue to worry that we are trading this as a short-crop year, with a high at harvest, then reality setting in. After the break, we will look at reasons we should have seen it coming.
The only question is, where is the top we are going to break from?