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| When the stocks report issued on September 28 was issued, I was very surprised at the corn feed use & residual number. It did not make sense to me. Feed use for the June thru August quarter was the lowest in 7 years while our animal numbers had increased. It was explained to me we had used more feed wheat, which was true, but not in that great of an amount in my mind and the other thought was a lower feeding rate, but that did not make sense either & other explanations suggested more ethanol byproducts were being fed.
In my own opinion, I think the August corn stocks were overestimated which resulted in a lower feed use number for the June thru August period of 2007. Friday’s report, maybe more accurate, now reflects a big feed use & residual number which means analysts are going to assume & raise feed use projections for each quarter of 2008. In the short run it doesn’t mean anything as we work with the numbers we have, except I am going to tuck it away in my mind being suspicious when the next stocks report is issued, there might be a bearish adjustment.
The question I have is in regard to HRW wheat seedings. It is obvious those other acres which were not seeded are held in reserve for corn and soybean acres. Even with historic wheat prices, we didn’t get the acreage increase. This is very puzzling.
The current excitement is over corn & I am now very cautious and am not going to follow this run in corn, as instead think in terms of selling this market at some point in the next few weeks. I think, again in my own mind, there should be more excitement about the wheat.
The liquidation of cows, while I think we will see some moderate liquidation, does not have any short term effect on corn, sow liquidation will have some rationing effect & I am sure the broiler people are going to respond quickly. In a nutshell, with $5 cash corn, it is difficult to turn that into meat at current prices and make a buck.
And while I think there is a bull market hiding in the pork complex, there is going to be a lot of meat around for awhile & it may remain hidden yet for a couple of months.
If you add freight & handling, I think it will be difficult for producers in other countries to also make a buck. So, we might be in the process of building a wide demand base for meat but it may require some time.
It is too early to draw too many complex conclusions, as we have to first plant a corn crop, grow it & as always the current trend is our friend…but I see some caution flags here as current corn prices will buy corn acres world wide.
I am going to review this potential ethanol situation this morning & try to determine just how much those folks can stand at current prices. Ethanol is a young industry. The most important unknown is how many of those operations bought enough cheaper corn during harvest and are they hedged on the long side? The major operators with grain experience, are I am sure, in good shape..however, there are some operations where the owners and managements lack depth in marketing of grain. If they are not hedged from a user standpoint, they may be in trouble. I can see how that could happen. If they waited to buy cheap corn at harvest & that did not happen & then evaluate advice from various experts who are looking at a comfortable carry out of corn….wait some more for a decline in prices…suddenly the market is going thru the roof & the pressure is on and the money risk is large. I can put myself in the shoes of a manager of one of those operations as you are tying up dollars in ethanol inventory which was getting cheaper by the day..margins are thin....investors or superiors are calling occasionally raising mental pressure about potential profits...it is not an atmosphere in which you want to race out and tie up more money in a bunch of corn futures -unless you've been beat around these markets for a few years and know 'what can happen, will always happen' and that users need to hedge just as much as producers.
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A question & a thought
