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Ahead of USDA crop report, analyst predictions are dire
Story Date: 8/10/2012
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Source: Rita Jane Gabbett, MEATINGPLACE, 8/10/12
USDA this morning will release its first U.S. corn and soybean estimates based on actual field surveys. Ahead of that report, two grain analysts made dire predictions of a gap between short crops and huge demand nearly impossible to close even if the Renewable Fuels Standard ethanol mandate was waived.
AgResources President Dan Basse and Terry Roggensack, founding principal of The Hightower Report, made their predictions at a live Chicago Mercantile Exchange-sponsored webcast Thursday afternoon.
On average, market analysts surveyed by ThomsonReuters expect USDA to peg the corn crop at about 11 billion bushels, down nearly 2 billion bushels from last month’s already reduced forecast. They expect USDA to put the soybean crop at about 2.8 billion bushels, down about 200 million bushels for a month ago.
Both analysts expect harvest to ultimately come in below whatever USDA estimates. “There are a lot of zeroed-out fields showing up across the Midwest,” Roggensack said, adding that even irrigated corn is coming in about 20 percent below expectations.
For soybeans, he said in the western Corn Belt there are a lot of reports of no beans coming out of the pods and since the plants have stopped blooming, even late rains would not result in more soybeans.
Ethanol and global demand
When it comes to rationing demand, neither analyst saw waiving the Renewable Fuel Standard for corn ethanol as an action that would make much of a dent in the supply and demand gap. They said the need to blend ethanol to raise octane levels is embedded into the current national fuel supply equation. Basse suggested the United States might even need to consider aggressively importing ethanol from Brazil.
In terms of grain and oilseed supply and demand, Basse said, “We have balance sheets that are almost insolvable… Our bet is the livestock people will take the biggest hit on this.”
In terms of global implications, Basse wondered aloud, “What price rations China? I don’t know.” China has been aggressively buying feedgrains for its burgeoning livestock sector. Overall, however, crop shortfall implications could be catastrophic for already impoverished parts of the globe, he warned.
Pricing
“We think markets will work themselves sharply higher,” said Roggensack, who predicted corn prices as high as $9.50 per bushel and soybean prices near $20. He noted the sharp price run-up in 1973 and 1974 translated into constant dollars today would equate to $17.59 per bushel for corn and $55.09 per bushel for soybeans.
The only supply redemption comes in the hope the southern hemisphere regions like South America and Australia have good crop weather and plant a lot of grain and oilseeds, which could come onto the global market six months from now.
Basse said a good South American soybean crop in 2013 could stop U.S. soybean prices from going much beyond $20.00 per bushel.
Wherever prices go from here, Basse says it will be the cash markets leading the futures markets, instead of the other way around. “We think the next rally in Chicago is cash-led. It is the cash market that will tell us how high is high.”
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