Fundamentally Speaking

By Joel Karlin
Contributing Analyst

The striking dichotomy between the old crop and new crop corn situation continues to manifest itself in a number of ways.

Basis levels remain at record high levels given very tight farmer holdings as they cling to whatever remaining stocks they have as a hedge after three straight years of below trend yields.

Increasingly ethanol plants and domestic feeders are turning to wheat given non-existent corn supplies and more favorable price relationships.

Finally, the bull spreads continue to widen with the March-May having gone from a 2-cent carry to a 27-cent inverse in the space of five weeks.

Along these lines, the accompanying chart shows the old and new crop U.S. corn stocks to use ratios in the May WASDE report, the month the USDA issues their first new crop balance sheets.

As noted in the graphic, the May 2013 old and new crop ratios have yet to be released but we are assuming that the old crop ratio of 5.6% given last Friday will be the one used in May and for new crop, we used the 2013-14 corn balance sheet provided at the USDA’s 2013 Ag Outlook Forum.

If these two figures were to be the ones that do appear in the May WASDE, this means that the new crop ratio of 16.7% will exceed the old crop ratio of 5.6% by 11.7% which would be the largest differential ever and yet another signal to end-users to just go hand to mouth on coverage.

(KA)

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