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The following market analysis is for the week ending June 4.
CORN - The corn market took full advantage of the holiday-shortened week to extend the losses of the previous week as there was little to attract buyers to the market.
At this time in the growing season, attention is normally focused on the weather and this week was no exception. Conditions could cautiously be called ideal - don't want to jinx the comfortable temperatures and rain events every three or four days that are in the two-week forecast. Corn was rated 76 percent in the good-to-excellent category as of May 27. It's been rated higher for this week in only two of the last 20 years.
We should see steady to better ratings as of June 6. In the shadows is talk about possible La Niña that could hinder high yield expectations. Export sales were a marketing year low at 7.8 million bushels, putting total commitments at 1.7 billion bushels or 10 percent over last year. Total exports are currently projected to hit 1.95 billion bushels, which would be up 5 percent from the 2008-09 crop year.
China was absent from the sales report this week as China's National Bureau of Statistics put their 2009 corn production number at 164 million metric tons versus the U.S. Department of Agriculture's 155 mmt projection. China sold nearly all of the corn they offered at auction this past week at prices down 3 percent from the previous auction. It appears their objective of curbing domestic prices may be working.
Adding to the bearish fundamentals were the negative influences from outside markets. Continuing uncertainty surrounding the euro and global economic conditions spurred the U.S. dollar to highs not seen since March 2009. On the radar watch now is Hungary and their ability to remain solvent.
The U.S. jobs report this week was a disappointment with only 431,000 jobs added, and 411,000 were attributed to temporary U.S. Census government jobs. Energy markets were also sharply lower with crude oil down $2.46 to close out the week at $71.51. Funds were sellers for the week, now showing they hold only minimal length. This could continue to lend pressure to the market overall.
Bullish news? Maybe weather problems later in the summer if we transition to La Niña, China returns as a buyer, or world equity markets inspire a general commodity rally. Downtrending markets will have rallies along the way; presently it's more a question of from where we will rally.
OUTLOOK: December corn fell to and closed at $3.59 1⁄2, a new low for the move during the week ended June 4. It was down 20 1⁄2 cents on the week. The low at $3.52 3⁄4 made in September 2009 is seen as first support. The December contract low at $3.46, set back in February 2007, is secondary support.
In five of the last six years, the May through December high in the December corn contract occurred from May through July. Unless the weather takes a significantly turn for the worst, it's difficult to expect the December contract to exceed the high established in May at $3.99 per bushel. First resistance for the December is $3.73 1⁄2. The first support in the July contract is the contract low of $3.33 3⁄4, then $3.16 3⁄4.
SOYBEANS - News for the soybean market mirrors that of corn. Good demand for old crop soybeans in the domestic market could be viewed as the one bright spot relative to the prospect of a huge crop in the making.
Reportedly, China has canceled 8-10 cargoes of South American soybeans. Their ports are congested which doesn't bode well for new business out of the United States. Adding to the negative market sentiment: meal basis levels in Argentina are trading at discounts to European origins; the Buenos Aires Cereals Exchanged raised their production estimate to 54.8 mmt versus the latest USDA 54.0 mmt figure.
On a positive note, domestic U.S. bean basis has been improving with farmers tightly holding their remaining soybean stocks. This should add to the inverse relationship between the July and November bean contracts. Exports sales for the week at 5 million bushels were less than expected with not much on the horizon for additional sales.
Here again, China was not a player this week on our export sales report. Funds were net buyers on the week, cutting into their net short position, but this wasn't enough to stem the late week sell-off.
OUTLOOK: The contract low in November beans is a long way off at $8.09 3⁄4. November beans were down 7 3⁄4 cents this week and settled at $9.00 per bushel. First support lies at $8.85, then $8.63 per bushel. Support in the July bean contract remains intact at this writing at $9.20, then $8.95 per bushel. Uncertainty about August weather and possible transition to La Niña (hot and dry) may limit the downside for a while, but it also probably won't be enough to sustain any big rally. Therefore, rallies are still selling opportunities.
Nystrom's notes: Closing changes for the week: Chicago July wheat set a new contract low and was down 22 cents, Kansas City wheat was down 16 1⁄2 cents, and Minneapolis wheat declined 13 1⁄4 cents. The Dow dropped 205 points and the U.S. dollar index was up 1.75 points. Crude oil lost $2.46 at $71.51, heating oil fell 4.68 cents, gasoline declined 3.13 cents, but natural gas gained 45.6 cents. The USDA will release the updated monthly supply/demand balance sheets on June 10.
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Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.
