Monday, July 8, 2013

Macquarie Calling For Corn in the Low $4's

Not quite as bearish as Deutsche's sub-$4.00 call, links below.
Corn (Dec) $4.955 up 4.25 cents, wheat $6.61 up a penny.
The July corn futures which expire on the 12th are trading at $6.87, with September at $5.29.
Beaucoup backwardation baby!
From Agrimoney:

Corn price to fall to low $4s a bushel - Macquarie
Macquarie signalled that prices are on course to fall to the low $4 a bushel as it warned investors against foreseeing a steep downgrade to the US acreage estimate which shocked investors two weeks ago.
The bank, already one of the more downbeat commentators on corn prices, in May forecasting Chicago corn prices averaging $4.50 a bushel in the October-to-December quarter, said that values were for a time likely to fall well below that level.
"We are likely to test significantly below this [$4.50-a-bushel] level in the October-to-November period," Macquarie analyst Chris Gadd said.
The forecast reflected an "increasingly negative outlook", after the US Department of Agriculture stunned investors on June 28 by estimating domestic corn sowings at 97.4m acres – 2.1m acres more than expected by analysts who had reckoned on extensive losses to a wet US spring.
Many commentators continue to believe in a further downgrade to the US corn sowings forecast ahead, with the lateness of sowings seen questioning the accuracy of the US data.
'Lose a little area…'
However, while "at the headline level this thesis seems to have merit, once you breakdown into the detail of the plantings the USDA's current forecasts look all the more reasonable", Mr Gadd said....MORE
See also:
Macquarie "Wheat 50% overvalued - corn to hit three-year low"
Corn: Deutsche sees potential for price below $4
"INSIGHT-Big U.S. harvest may hit grain prices, test high farmland values"

And even as far back asDecember 2011, coming into the 2012 marketing year:
What Would Sub-$4.00 Corn Do to the Price of Farmland?

My back-of-the-envelope calculation says that every arms-length purchase since 2008 would be underwater.
Farmland is worth it's discounted cashflow. Period.
It may sell for more but at some point it returns to trend. It can correct either in price or in time.

Corn is trading at $5.94, down considerably from it's $7.99 record high earlier this year....