As of Friday most analysts are proclaiming the start of a trade war. The market's reaction was not that dramatic, and we know with regard to corn, China is not a huge player when it comes to our exports and a lot of trade expectations are likely baked in at this point. Or are they?
When we look at corn we see a continuing decline in the daily chart...although not as steep as we have seen before.
In my last post I discussed the planted acres report and price scenarios (based on my simple model) assuming USDA's projected yield of 174 acres and the slight increase in acres. And I wondered how much trade worries could explain any of the impact on prices. Given China's minimal role in exports (not to reject spillover effects from other markets) if I take my basic model and project prices based on a number of potential yield scenarios it starts to look like what we are seeing on the board and in the charts could largely be explained by big yield expectations.
Yield Stocks to Use Model Projected Price
174 11.99% 4.14
176 13.11% 3.94
178 14.23% 3.76
180 15.35% 3.61
*Corn Price = a + b (1/Stocks-Use Ratio)
Informa economics reported an expected yield estimate around 176 bushels recently. Other analysts could be making a higher guess. We did see some daytime heat and warm nighttime temps this last week as a record portion of the corn crop is silking at this time. One thing that always surprises us is how robust modern genetics and varieties enable corn to pull through almost contrary to what crop ratings say. Recall last year based on conditions, ratings, and other factors analysts were for a long time thinking about 168 bushel yields and we ended up at 177. All of these factors make a December corn price near or above $4.00 seem like a stretch at this point based on a simple model with yields anywhere north of 176.
***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****
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