19th Jul 2012, by Agrimoney
Chicago's best-traded December corn contract represents a better prospect than the spot September contract, Societe Generale said, even as the near-term contract set a record high.
The September futures contract will feel weight both from demand rationing, as elevated prices prompt buyers to ditch or defer orders, and from harvest pressure, and the prospect of a spike in supplies as 2012 crop comes onstream, the bank said.
Official data later on Thursday are expected to highlight the impact of high prices on curbing US exports, which are expected to come in at 300,000-450,000 tonnes, old crop and new, in the latest week, compared with 664,900 tonnes last time.
Meanwhile, US ethanol production data on Wednesday showed the impact of higher prices on biofuel plants, with output dropping last week to 802,000 barrels a day, the lowest on records going back two years.
The figure was also below the 870,000 barrels a day or so needed to meet US Department of Agriculture forecast for 2011-12, on Morgan Stanley estimates, suggesting that domestic corn supplies might not end the season as tight as official forecasts have factored in.
'Severe rationing needed'
"Demand destruction for the 2011-12 year has become apparent in both US ethanol production and exports in recent weeks," SocGen analyst Christopher Narayanan said.
However, with prospects for the 2012 harvest still falling, there was a further need to raise prices in new crop corn to choke off demand.
A yield "in the 130s" bushels per acre looks "increasingly possible" if deterioration continues in the western Corn Belt, which has stood relatively firm against the drought"
"At these [yield] levels, severe rationing in the 2012-13 crop year will need to occur, particularly in exports and feed/residual," Mr Narayanan said.
"With this backdrop, we continue to see value in owning December 2012, rather than September 2012, corn."
Record prices
September corn actually proved the better performer in early deals on Thursday, soaring 1.9% to $8.10 a bushel as of 04:20 Chicago time (10:20 UK time) – a record for a spot contract.
December corn rose 1.6% to a contract high of $7.96 ¾ a bushel.
The rises reflected prospects for continued poor weather at a time when many analysts have already downgraded forecasts for the average US corn yields below 140 bushels per acre, with AccuWeather, for instance, estimating it at 138 bushels per acre, and other forecasts even lower.
'Bullish frenzy'
"There have been some privates [analysts] as slow as the 130-131 bushels-per-acre level," Jon Michalscheck at Benson Quinn Commodities said.
"It keeps the potential for further rationing a strong possibility out in front of the market and continues to feed the bullish frenzy.
"We sense that at the present time a large percentage of the trade is expecting the yield to slip under the 130 level," he added, noting that downgrades were approaching levels seen in the notorious drought year of 1988.
"If [the yield estimate] declines 25% from its spring highs, as was seen in 1988, it could post a 124-125 bushels-per-acre level," Mr Michalscheck said.
Chicago's best-traded December corn contract represents a better prospect than the spot September contract, Societe Generale said, even as the near-term contract set a record high.
The September futures contract will feel weight both from demand rationing, as elevated prices prompt buyers to ditch or defer orders, and from harvest pressure, and the prospect of a spike in supplies as 2012 crop comes onstream, the bank said.
Official data later on Thursday are expected to highlight the impact of high prices on curbing US exports, which are expected to come in at 300,000-450,000 tonnes, old crop and new, in the latest week, compared with 664,900 tonnes last time.
Meanwhile, US ethanol production data on Wednesday showed the impact of higher prices on biofuel plants, with output dropping last week to 802,000 barrels a day, the lowest on records going back two years.
The figure was also below the 870,000 barrels a day or so needed to meet US Department of Agriculture forecast for 2011-12, on Morgan Stanley estimates, suggesting that domestic corn supplies might not end the season as tight as official forecasts have factored in.
'Severe rationing needed'
"Demand destruction for the 2011-12 year has become apparent in both US ethanol production and exports in recent weeks," SocGen analyst Christopher Narayanan said.
However, with prospects for the 2012 harvest still falling, there was a further need to raise prices in new crop corn to choke off demand.
A yield "in the 130s" bushels per acre looks "increasingly possible" if deterioration continues in the western Corn Belt, which has stood relatively firm against the drought"
"At these [yield] levels, severe rationing in the 2012-13 crop year will need to occur, particularly in exports and feed/residual," Mr Narayanan said.
"With this backdrop, we continue to see value in owning December 2012, rather than September 2012, corn."
Record prices
September corn actually proved the better performer in early deals on Thursday, soaring 1.9% to $8.10 a bushel as of 04:20 Chicago time (10:20 UK time) – a record for a spot contract.
December corn rose 1.6% to a contract high of $7.96 ¾ a bushel.
The rises reflected prospects for continued poor weather at a time when many analysts have already downgraded forecasts for the average US corn yields below 140 bushels per acre, with AccuWeather, for instance, estimating it at 138 bushels per acre, and other forecasts even lower.
'Bullish frenzy'
"There have been some privates [analysts] as slow as the 130-131 bushels-per-acre level," Jon Michalscheck at Benson Quinn Commodities said.
"It keeps the potential for further rationing a strong possibility out in front of the market and continues to feed the bullish frenzy.
"We sense that at the present time a large percentage of the trade is expecting the yield to slip under the 130 level," he added, noting that downgrades were approaching levels seen in the notorious drought year of 1988.
"If [the yield estimate] declines 25% from its spring highs, as was seen in 1988, it could post a 124-125 bushels-per-acre level," Mr Michalscheck said.
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