Studies of previous late-planted crops show that over the past 30 years, there was significant acreage and yield loss about half the time, which makes historical precedent inconclusive. Besides, analysts have rationalized that we have an edge and that there is no need to panic at this point for two reasons. First, the extra moisture is welcome after last year’s debilitating drought left many fields with inadequate subsoil moisture to accommodate a high-yielding crop, and that could increase yields. Second, any comparison of late planting between 2013- 14 and other years is not reliable, because advanced technology has brought genetically modified seeds that require less moisture and shorter growing seasons.
China, the world’s second-largest producer and consumer of corn behind the U.S., is experiencing widespread weather-related planting delays as well. The northeast is wet and the northwest has drought.
Mitigating the potential for smaller-than expected Northern Hemisphere 2013-14 crops, to some degree, are the excellent results being achieved in Brazil. The 2012-13 harvest is not complete, and ideal growing conditions have resulted in upwardly-revised estimates. The April USDA estimate was 74 million tonnes, revised up from the 72.5-million-tonne March estimate. Some analysts have raised the forecast to 76.5 million tonnes. It reads well in the headlines, but it would be a drop in the bucket if set against a Northern Hemisphere crop failure.
The coming U.S. crop is expected to replenish inventories. At 14.5% of consumption, 2012-13 global ending stocks are at their lowest level since 1973-74. As illustrated, farmers should get the crop in the ground eventually, and there is a better than even chance that we’ll muddle through and avoid a disaster. However, at present, with the prices hovering near the recent lows, it would seem that the market is discounting a normal crop.
Our April 5 recommendation was “... to follow the weather and buy new-crop months at the slightest hint of a disappointing crop.” Well, we believe we’re there. We are not predicting further bad weather. Rather, we believe that the U.S. crop is highly vulnerable, and the market is presenting a potential low risk/high reward trade if anything short of perfect conditions do not appear – real soon.
Buy December corn, place initial stops at $5.05, close only. Alternatively – for the more patient trader – surrender a little territory and wait for the market to declare that things aren’t going as well as they should be. Place buy stops at $5.50, also close only, to enter the long side.