Posted 10/18/2020 09:31 (#8551440) Subject: Why I am bullish 2021
In an attempt to be more popular on NAT I am turning very bullish going forward(kidding I couldn't care less).
While the discussions are about the 2020 crop and we are trying to figure out price and why, the glaring thing to me is the acreage for 2021. We have seen a nearly unprecedented chain of events occur in a matter of a couple months. IA drought, derecho, wide spread dry august across the entire belt, ridiculous buying by china, lower than expected 2019 year end stocks. Basically the 290 bean carryout estimate is beyond a game changer, the udsa has flat backed themselves into a corner. Imo the will be forced to drop yield even more, a 1-2 bushel drop in yield makes ending stocks sub 5% stocks to use.
So going forward how does this play out in 2021? I would like to say it is easy to pencil wheat acreage being up but with problems in many areas it is too easy to not assume the markets could easily change those acres. So lets assume there is 178 million acres available for corn and beans(that is 4 million over 2020 planted and in line with historical). So how can we break down 178 and make it work? With soybean demand at 4.5 billion and a trend just above 50 it would take 89 million acres just to maintain carryout if china really does continue to step up to the plate on the trade deal. Obviously the market wouldn't be content pricing a sub 5% carryout so using the 89 million acres leaves ample room for lower demand based on price and lets assume a good SA crop.
So 89 million bean acres leaves room for 89 million corn acres. With a trend yield of 179 that would have production at 14.65 which is basically demand. So with that acreage layout carryouts would be sub 5% beans and 2 billion corn. At first glance the corn number still appears ample but is the market really going to be content with the bean carryout? That is an obvious no so how does the market shake out an acreage that doesn't make the July and August timeframe as critical as we have seen since the 2012 disaster?
I'm not predicting $7 corn as the end users aren't anywhere near in the ethanol boom position but there is problems brewing. I think it is safe to assume china has problems and rebuilding their hog herd from ASF is going to take a lot of beans. If we get any signs of meaningful production problems out of SA or the US next summer I could easily see some beans being bought in the $13-14 range and corn around the $5 mark would not surprise me a bit.
All that said I wouldn't get to the moon bullish as it will be a bumpy ride. As a producer I am not in the business of predicting the market as I will leave that to the CF's and JP's of the world, as I hope my fellow NATer's do, I will manage my risk accordingly and try to make smart sound business decisions and avoid the gambling. Remember unless you are producing your last crop you will always have more bushels to sell so don't be afraid of letting some go.