The forecasts for all principal demand categories are dramatically below last year’s levels. Feed demand is estimated to fall by 9%, while ethanol is expected to be 10% lower. Unlike exports, where the pessimism is based on hard facts, US feed demand has not shown any weakness yet, which is precisely what the USDA’s eye-opening quarterly stocks report was about.
The harvest is almost complete, so it is unlikely that US crop forecasts are going to vary materially from the October estimate at this point. South American corn output, however, will now begin to play a larger role, than it ever has. In 2011-12 Argentinean farmers planned to harvest a record crop, but because of drought, production reached only 21 million tonnes, 16% below the previous season. Planting intentions are about the same for the 2012-13 crop. Weather permitting, that should yield a crop of 28 million tonnes and exports of 18.5 million tonnes.
At 70 million tonnes, Brazil’s crop will be smaller than last year, but with exports of 16 million tonnes it is still the third-largest exporter behind the US and Argentina. But with the history of crop-altering erratic weather swings in South America, the estimates of export availability are all conjecture at this time.
So that leaves us with two major wild cards. Any glitches in South America, and even a small uptick in global demand, will tighten the market further. As it stands now, global ending stocks are estimated at 13.74% of consumption, their lowest level since 1973-74.
Maintain long positions and raise stops to $6.95 per bushel, basis December, close only.