Grain Outlook: Downward spike eerily familiar

<i>Originally published in the July 3, 2009, print edition.</i>

The following market analysis is for the week ending June 26.

CORN — Corn began the week with a sharp downward spike that was eerily similar to the previous week.

With many reports and dates looming in front of us next week, the market was undecided on specific direction and drifted sideways the balance of the week. The July contract closed at $3.84 1/4 down 15 cents for the week and the December contract lost 15 1/2 cents to settle at $4.04 1/4.

A rallying U.S. dollar put pressure on all commodities as we entered the last full week of June and weather concerns were put on the back burner for the time being. World Bank commented that the global recession would be longer and deeper than expected. They forecasted a 2.9 percent global contraction for this year as compared to their last forecast for a 1.7 percent contraction.

The dollar quickly changed directions for a Turnaround Tuesday and commodities acted in a typical inverse style to regain a portion of the Monday losses. December corn defended the $4 support level until Friday when it punched through to touch $3.99.

June 30 will bring us the long-anticipated and much talked about Planted Acreage report. The information the U.S. Department of Agriculture uses is accumulated in the first two weeks of June. Also on that day we will receive the Grain Stocks as of June 1 report. These reports coincide with month-end and quarter-end trading as well as first notice day for the July grain contracts.

Will the poor feeding margins catch up to reports and show larger grain stocks? Although some corn acres were switched to soybeans due to late planting, will the USDA “find” a portion of the 7.5 million acres that were lost on the March report? In five of the last five years, the June acreage reports have shown increases in corn acreage from the March report. It will all make for an interesting trading day.

The average trade guess for corn acres is 84 million acres and 4.2 billion bushels for stocks. And beginning with evening electronic trading on July 1, the Globex will extend overnight grain trading hours by one hour and fifteen minutes to close at 7:15 a.m. Chicago time. Is this a first step to longer trading hours for grains?

Corn export sales this week held in at recent levels at 27 million bushels. Total sales commitments for this marketing year are 1.7 billion bushels. The USDA’s export forecast stands at 1.75 billion bushels. Ethanol margins have improved to levels not seen in almost a year, but feed demand is suffering as livestock margins are under water. Corn conditions were unchanged last week but are expected to show improvement from the 70 percent good/excellent level.

OUTLOOK: The outside markets will continue to substantially influence the markets, but weather is improving and along with it production prospects. A short trading week next week that includes the acreage and grain stocks should provide enough volatility for everyone.

SOYBEANS — The story in soybeans is definitely one of two crop years. Old-crop demand has apparently not been rationed yet by price. New-crop is benefiting from the old crop strength, but next year’s carryout is expected to be over twice this year’s carryout. According to reports, pipeline bean stocks usually run about 4 percent of usage. Based on the current balance sheet, that roughly equates to 123 million bushels. The June USDA estimate was 110 million bushels.

Domestic board crush margins are good, but I have heard mixed comments from different parts of the country on the profitability of the cash crush margins. The remaining soybeans are in tight hands which is translating into big inverses on the Board of Trade and strong basis levels.

The Census Crush released late in the week was bearish. There were 146 million bushels crushed which was 2 million bushels less than the trade anticipated. In addition, meal stocks were huge and oil stocks were as expected. Watch for downtime if bean replacement becomes more difficult and/or unprofitable.

Soybean export sales were again in the black this week for old crop with net sales of 1 million bushels. China had net purchases of 1.4 million bushels. Total export sales commitments for the 2008-09 marketing year are 1.24 billion bushels versus the latest USDA projection of 1.25 billion bushels. New crop sales were decent at nearly 8 million bushels.

New crop soybean prospects look better than a week ago as the sun came out and periodic rains provided the fuel to push the plants along. As usual, August weather will determine our yields. You never know if the acreage report will throw us a surprise or not, so have a plan in place for your next pricing level. In recent years, the actual June acreage number has been surprisingly close to trade estimates. The average trade guess on soybean acres is 78.1 million acres and for stocks 585 million bushels.

OUTLOOK: Until old-crop beans are rationed, it will be hard to break the price direction. The June 30 USDA reports will give us better definition to where new-crop is headed. Since we are so close to the acreage update, I’ll wait to see those numbers to re-evaluate price ideas. This week, July beans settled at $12.01, up 22 cents and November beans at $9.91, down 15 cents.

Nystrom’s notes: The USDA will release their Planted Acreage and Grain Stocks reports on June 30. The CBOT will extend the overnight trading hours until 7:15 a.m. Chicago time beginning July 1. Grain markets will be closed July 3 in observance of Independence Day. As of noon on June 26 changes for the week were: crude oil down 86 cents at $69.16, heating oil down almost 6 cents, gasoline down a nickel, natural gas down 5.7 cents, U.S. dollar up 0.27, and the Dow down about 120 points.

Have a safe, wonderful holiday!

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