Tight Corn Crop Could Spell Opportunity
Justin Rohrlich August
29, 2011 12:15PM
of viewing this as a sell signal, it's actually an excellent
opportunity to buy.
News of “record shortages” regarding this year’s corn
crop may sound like reason for concern, but at least
two industry insiders say not to worry.
The USDA’s last forecast expected yields
of 153 bushels an acre and a 12.9 billion bushel crop,
according to Bob Hoff of Northwest AgInfo Net’s Market
Line. However, the Pro Farmer Tour estimates “production
of 12.4 billion bushels on yields of 147.9 bushels an
“The word ‘shortage’ gets thrown around
a lot, but I think people just really like to push that
panic button,” Gary Truitt, president of Hoosier Ag
Today, tells Minyanville.
“We’re still going to produce a very
large corn crop -- not as big as we’d like to see, but
my opinion is that we won’t be seeing any market disruptions,”
The reason for the lower yields, points
out Truitt, has more to do with this season’s heat than
the unusually dry conditions.
“Heat kills pollination,” he explains.
“Pollen cannot exist when it gets to that 100 degree
range inside a corn plant. I met with a farmer the other
day, and his plants looked okay, but when you pull back
the ears, there’s just not a lot of grain in there.”
It’s a situation that Jim Reed, president
of the Illinois Corn Growers Association, also encountered
this year. As he tells the Champaign/Urbana News-Gazette,
“Our crops look very stressed. A lot of ears aborted
kernels on the ends of the cobs. ... The number of kernels
was not very good.”
However, Reed notes that the five-year
trend line has “been moving up since the 1980s,” which
means that the “low” corn yields we’re seeing are still
higher than they were a decade ago.
While Gary Truitt believes it is “too
early to be overly speculative” about the exact size
of this year’s crop, he also thinks simple economics
will smooth out most bumps the industry will encounter.
“It’s going to be tight, though as the
price goes up, that’ll ration demand and the market
will make adjustments,” he says.
Money manager Shawn Hackett sees the
situation as a tremendous buying opportunity in the
“We’re going to have record low herd
sizes next year,” he tells Minyanville. “Cattle herds
will be the lowest in 40, 50 years. Chicken production
is contracting dramatically as we speak. With those
feeding units way down, next year’s demand will be way
Which brings us to the crux of Hackett’s
argument for optimism on the long side.
“You will be seeing absolute nosebleed-high,
record-setting prices for livestock for a while,” he
says. “But the weather won’t stay bad forever. The hope
is that we’ll see record acreage out of Argentina and
Brazil, and that we will plant record acreage here next
year to make up for 2011. With demand down -- and cooperation
from Mother Nature -- we could easily be looking at
a feed glut and a crash in corn prices, setting up the
perfect bullish storm as cheap feed meets record high
end-user prices, setting the stage for record earnings,
record margins, record performance.”
Offers Hackett: “Markets are usually
anticipatory. If the back half of 2011 puts in a record
high, the market will start to figure this out and we’ll
likely see a big rise in the first half of 2012. Instead
of viewing this as a sell signal, it’s actually an excellent
opportunity to buy.”
expects outfits like Sanderson Farms
(SAFM), Smithfield Foods (SFD), and
Tyson (TSN), along with a “flier” like
heavily-leveraged Pilgrim’s Pride (PPC)
to be firmly in the sweet spot.
course, the other side of this will have an effect on
the Ruth’s Chris’ (RUTH) of the world,”
Hackett continues. “Those people that went out for steak
twice a week might cut back to twice a quarter.”