China Corn Blowout
Crop progress report shows LA at 61% harvested, MS at 29%, and Ark at 30%. With our own lyin' eyes there are enough modules in fields to kick those figures to 80%, 50% and 50%. Delta did cause some damage, mainly due to some modules placed in low spots. Some stringouts have been noticed. Quality damage is assumed, but overall quality of today approaches 75% tenderable in any given year. Local planters say harvest can resume tomorrow. One opinion of yield loss in the confluence of the area where LA, Miss and Ark meet, is 100#/a to as high as 250#/a.
Corn price in China has reached a record of $9.73. The US record was $8.44 in 2012. A bushel of corn costs near $4 US today. Add 75c to the Gulf, then about $1.50 freight to China, get $6.25. Now tack on roughly 15% tax, get about $7.20/bu to get corn from here to China. That means a huge arbitrage of $2.50/bu, so its no wonder China is buying large amounts of corn. They typically use what they grow, and have imported the small difference. The big issue is their stocks of 189 mmt (7.5 Bbu), which is about half of US production. These stocks are said to be part phantom, part missing, and part spoiled. Sounds like a cotton soap opera.
All of the row crops have seen demand growing, and supplies shrinking. These changes occurred following a multi-year low for each, all below cost of production. End stocks have decreased, and in soy's case, are tight. Corn has lost 1/3 of its end stocks that were once thought to be +3 Bbu. Then there are wheat and cotton, which have seen weather and demand cut into end stocks, but these two have miles to go before anyone considers their carryouts as tight.
We are stumped for a spec trade, following a market purge of Dec shorts at ~66c. The current end stocks number does not match up with 69c, so we must assume the end stocks are wrong. In order for 69c to be justified, end stocks need to be ballpark 5.75 Mb, so as to get a ratio at 33%. That means a cut in production of 900 kb, and an increase in exports to 15.0 Mb. Both of those could materialize. But what if they don't?
Nothing for cotton. Regards spot corn, it is near the major 62% retrace from the June 2019 high to the Apr 2020 low, at 4.02. The Dec contract shows numerous lows from Jan 2018 to Apr 2019 in the 4.00 area. A major high was made at 4.03 in Oct 2019. Corn has been a leader on the all-row crop rally, and is approaching long term price resistance. Today's close, 3.96.