Grain Outlook: Corn breaks hard to downside

<i>Originally published in the June 26, 2009, print edition.</i>

The following market analysis is for the week ending June 19.

CORN — Corn broke hard to the downside this week as the dollar rallied, crude oil retreated in response and weather and conditions for corn development improved.

Informa Economics issued their updated planted acreage intentions as the week ended as well. Outside market influences may rule direction until we receive the U.S. Department of Agriculture Planted Acreage and Grain Stocks reports June 30.

July corn spiraled lower to finish the week at $3.99 1/4, down 26 1/2 cents on the week with December corn down 28 1/4 cents at $4.19 1/2. Lower corn prices have improved ethanol margins to the highest level in about a year according to some calculations.

The dollar soared to begin the week before turning sideways on mixed economic reports released throughout the week. Initial jobless claims were above estimates at 608,000, while on-going claims were down for the first time since January. Regional manufacturing was better than anticipated and U.S. fuel demand over the last four weeks was down 4 percent from last year.

Informa Economics lowered their 2009-10 corn acreage estimate to 83.111 million acres, down 1.875 million acres from the USDA’s March estimate. Using a yield of 156.3 bushels per acre, production of 11.876 billion bushels and exports of 1.95 billion bushels, they are forecasting 2009-10 ending stocks of 1.116 billion bushels.

The latest USDA ending stocks number was 1.09 billion bushels. On the June USDA report, yield was lowered 2 bu./acre to 153.4 bu./acre. If the USDA keeps the yield the same, but lowers acreage, their carryout may fall below 1.0 billion bushels.

Current conditions are keeping yield ideas optimistically uncertain with ratings improving to 70 percent good/excellent at mid-month versus last year when they were only 57 percent good/excellent.

For this marketing year (2008-09), Informa’s carryout prediction is 1.73 billion bushels as compared to the last USDA figure of 1.60 billion bushels.

OUTLOOK: June usually brings a price break to corn, so along with good weather on the horizon and corn’s failure to push through resistance, it may be difficult to attract new term buyers. Continue to monitor the dollar’s and crude oil’s price action and their influence on corn prices.

Corn on its own now looks negative to sideways with this week’s technical moves and another week until the USDA reports. A new rally will most likely have to come from the weather.

SOYBEANS — The weaker equity market and stronger U.S. dollar got beans off to a lower start to begin the week. They tried to stage a comeback, but on Friday they again turned sharply lower.

Improving weather and a higher acreage report contributed to the sell-off. The July soybean contract dropped 66 1/2 cents this week to close at $11.79 and the November contract plummeted 70 1/2 cents to settle at $10.06.

Demand rationing for old crop beans may be nearing, but not yet complete, as evidenced by this week’s export sales report and the National Oilseed Processors Association crush. Exports were better than expected at a positive 5.4 million bushels. China showed up as purchasing one cargo on the report. New crop sales were 3.8 million bushels. It’s thought China bought up to 8 cargoes of old crop soybeans out of South America this week.

The NOPA soybean crush number this week reflected the excellent crush margins. The crush of 142.2 million bushels was 5 million bushels more than the estimate. Looking ahead to next year’s Chinese demand, the China National Grain and Oils Informational Center is predicting their bean imports may be down 7.5 percent for the 2009-10 crop year.

Informa Economics’ latest forecast for soybean acreage was released June 19 at 78.87 million acres. This is up 2.845 million acres from the USDA March report and up 3.2 million acres from last year. This was slightly more than the trade had been expecting and a sell-off ensued.

Informa’s 2008-09 carryout projection has fallen to a tight 76 million bushels versus the last USDA number of 110 million bushels. Their 2009-10 carryout estimate has grown to 187 million bushels but is still less than the June USDA 210 million bushel number.

In the first crop condition rating of the season June 15, beans were rated as 66 percent good/excellent as compared to 56 percent last year. A total of 72 percent of the beans had emerged versus 69 percent last year and 83 percent on average.

OUTLOOK: Look for continued volatility as the market tries to ration old crop supplies but the outlook for new crop supplies improves. Outside factors including the U.S. dollar and energy markets will also have an impact.

Next support in the November beans is viewed at $9.59-$8.95 and resistance at $10.50, then $11.

Nystrom’s notes: Crude oil fell back under $70 to close the week at $69.55, down $2.49, heating oil down a nickel, gasoline down nearly 12 cents and natural gas up 17 1/2 cents as it narrowed the huge gap to crude oil. The U.S. dollar was up 0.14 at 80.73 and the Dow was 259 points lower.

The USDA will release their Planted Acreage and Grain Stocks reports on June 30. The Chicago Board of Trade will extend the overnight trading hours until 7:15 a.m. Chicago time beginning July 1.