Corn prices remain range-bound, despite the EIA reporting weekly ethanol production at its second highest level ever. There's also talk circulating that the USDA needs to adjust both U.S. exports and ethanol production estimates higher to account for the strong demand.
Bulls continue to point towards corn being traded below the cost-of-production as a reason to be a longer-term bull. Unfortunately, many seasoned professionals say, who cares? We've historically traded corn below the cost-of-production for a much longer period of time than we've traded it above the cost-of-production. In other words, just because prices are cheap doesn't necessarily mean prices are going to rebound higher any time soon.
Simply ask your' father or grandfather how many times they've farmed when cash prices were below the cost-of-production? I promise it's more than most realize. I also believe we are starting to see much more disparity and variance in "profitability" across the country. For example, I spoke for the Nebraska Bankers Association yesterday, and the bankers to the West seem to be seeing much more problematic financial conditions on the farm than those to the East.
I'm hearing similarities and wide ranging variables in profitability across farms in the Dakotas, Kansas, Missouri, Minnesota, Arkansas, Tennessee, etc... With more "contract farming" of specialty crops and seeds, we are also seeing much more extreme variations in the "basis" and bottom-line profitability. We've also seen many more extremes in weather variabilities this season. Meaning you might have pockets this year where production struggled and at the same time the basis might be weaker than normal.
Hence, I think some farmers and bankers in a few unfortunate areas are going to be facing extremely tough decisions in the days ahead, especially if corn prices are unable to breakout of their current trading range. Obviously, Tuesday is going to be a big day as the USDA releases their latest estimates. I suspect like most, the balance sheet tightens on an increase in demand and bit lower expectation for total U.S. production.
The latest drought monitor shows little change from last week, but still indicates that almost 50% of Iowa and just over 35% of Illinois is experiencing some type of drought like condition. Even though I suspect the average yield in some of our larger U.S. production areas will be lower compared to the past couple of years, I have to believe both domestic and global supply stays above levels that make the bears nervous.
I think it's going to take something other than the traditional fundamentals to shake the bears. Those type of headlines probably don't have much hope until mid to late-October. As a producer, I want to keep hedges in place and stay patient through the next 30 to 45 days. As a spec I still believe we are range-bound. Buying cheap volatility, looking for a breakout later in the year might make some sense... As you can see form the historical data and averages I included below, the U.S. corn harvest is starting to more rapidly advance to the north. GET ALL MY DAILY THOUGHTS HERE