The U.S. Department of Agriculture reported September 1st corn stocks at 1.128 billion bushels, 164 million or 17% above the average trade estimate of 964 million.
The fertilizer stocks are probably going to take a hit on the news. It’s not a buying opportunity except for day traders.
USDA soybean stock estimates were marginally down 10 million bushels from trade expectations and wheat (all types) was estimated higher than the trade assumed, up 80 million.
Although demand destruction of 2.5 billion bushels of corn (less feed, ethanol and exports) during the June-August period may be partly responsible for the higher stock number, early harvesting of new crop corn could also have added to stocks, thus borrowing from the carryout number for next year and being market neutral.
The percentage of mature corn crop on August 28 was 81% in North Carolina, 65% in Texas and 42% in Tennessee.
Farmers will often harvest early a drought affected corn crop that is obviously going to die, once kernel moisture levels have dropped to acceptable levels.
Therefore, a severe overreaction in the corn market and in Corn Belt leveraged fertilizer stocks is probably likely this morning, but ultimately could provide a buying opportunity. Just not yet, unless you are a day-trader.
CF Industries Holdings (CF) was down $8.94 to $132 in premarket, on light 21K shares traded.
Agrium (AGU) was down $2.40 at $67.90 (3.4%) on a couple of thousand shares.
PotashCorp (POT) and Mosaic (MOS), being more leveraged to international fertilizer markets, should be less affected.
The Mosaic Company reported cash flow before working capital changes of $737 million or $1.65 per share for the Q1 fiscal 2012 ending August 31. Current performance is excellent, with Mosaic driving the phosphate plants hard. However, the future of its position in the international finished phosphate market is uncertain, given rising competition from OCP in Morocco and PhosAgro in Russia. The stock is being dumped by hedge funds disappointed the company has not paid a special dividend or managed to buy back the 21 million shares still owned by the Cargill trust beneficiaries.
Fertilizer ML’s such as Terra Nitrogen (TNH) and CVR Partners (UAN) may be lower and volatile today.
Dec. 11 corn has been hammered during September from $7.77/bushel at the end of August to $6.28, about a 19% drop.
However, new crop corn (Dec 12) has taken a lesser toll, down from $6.69 to $5.79 or 13.5%.
It’s the new crop corn price that drives U.S. fertilizer purchases for next year.
Having said all that, farmers are not averse to stalling on input purchases if they see a bear trend unfolding.
Uncertainty over Europe, China and increased global grain export competition has probably weighed on farmer confidence.
Our overall posture toward the market is “Warning – Commodities and stock market downturn to last for another month – proceed with caution."
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Disclaimer: The information above was disseminated to clients and subscribers of The BCMI Report and/or The BCMI Flash anywhere from 12-48 hours before appearing on Seeking Alpha.