Published: March 27, 2008 12:31 pm            

Grain Outlook: Expect large swings to continue

Originally published in the March 21, 2008, print edition.

The following market analysis is for the week ending March 14.

SOYBEANS — Beans experienced another week lower as we wait for the Planting Intentions report from the U.S. Department of Agriculture on March 31. July beans were down 52 1/4 cents for the week and November beans were down 32 1/2 cents.

The U.S. dollar plummeted again this week to all-time lows versus the euro and to 12-year lows versus the yen. Talk that an interest rate cut of up to 0.75 percent is coming picked up steam.

Record all-time highs were set in both the crude oil and heating oil markets, gold exceeded $1,000 per ounce, and cocoa traded to 20 year highs as fund money poured in, looking for a hedge against inflation by buying commodities.

On the March 11 USDA supply-demand report, exports were raised to 1.025 billion bushels. The result was a decline in ending stocks to 140 million bushels, slightly smaller number than the average guess. This is the lowest stocks number since the 2003-04 crop year.

Informa Economics released their 2008 acreage estimate on March 14. They expect 71.3 million acres of soybeans to be planted versus 63.6 million last year and 1.4 million more than their January estimate. Minnesota’s bean acreage was forecast to increase 9 percent this year. Using a yield of 43.1 bushels per acre, the crop size would be 3.039 billion bushels.

Informa’s ending stocks number came in at 172 million bushels. Informa is currently projecting this year’s carryout at a meager 96 million bushels versus the USDA’s latest 140-million-bushel estimate.

Exports were uneventful this week at 9.5 million bushels. Total commitments of 959 million bushels are now at par with last year, while before they were running 1 to 3 percent ahead. This commitment figure is 93 percent of the USDA export forecast of 1.025 billion bushels.

While South American soybean production estimates are remaining mostly steady, Argentina has increased their export tax on soybeans and products by 7-9 percent. If these stay in place, it could put a crimp in bean plantings next year. Argentine farmers staged a two-day strike in response to the tax increase.

If you are a chartist, the July beans had been forming a pennant formation which would indicate a period of consolidation. What direction they would break out of the pennant is what we were watching. This week they broke out to the downside which possibly indicates further pressure to the downside.

OUTLOOK: Expect the large swings in the market to continue. Outside markets including financial and commodity sectors, as well as acreage struggles and planting weather, will contribute heavily to the uncertainty. Be diligent with your marketing plan. You may need to explore additional marketing tools to achieve your desired results.

CORN — Despite talk in the pits that traders who had been long corn and beans, and short wheat, were forced by margin calls to unwind the spread, corn plowed higher the second week of March. July corn traded to another new contract high of $5.93 and gained 12 1/4 cents for the week, with December corn up 15 3/4 cents. The new crop corn-bean spread collapsed from 2.345 to 2.224 as the acreage fight continued.

The USDA did not make any changes to the 2007-08 balance sheet on the March 11 report. Carryout remains at 1.438 billion bushels. Informa Economics released their updated 2008 acreage estimates as we closed out the week. They are pegging corn acreage at 87.5 million acres, which is 1.1 million acres less than their last estimate. Minnesota’s corn acreage is expected to decline 8 percent from last year. Their supply-demand sheet includes an aggressive yield of 158.4 bushels per acre (last year: 151.1) for a crop of 12.741 billion bushels. Ethanol use is boosted to 4.1 billion bushels, feed-residual is dropped to 5.3 million bushels, and exports drop to 2.175 billion bushels. This would put ending stocks virtually unchanged from this year at 1.439 billion bushels. The USDA 2007 numbers are: planted acres of 93.6 million acres, crop size of 13.074 billion bushels, and ending stocks at 1.438 billion bushels.

Exports for the week were as expected at just over 30 million bushels. Total commitments at 2.025 billion bushels equate to 82.6 percent of the total export projection for the year. Broiler egg sets slowed this week to only 101 percent of last year. Most of the year they have been running at 103-104 percent of last year. Chick placements were about steady at 103 percent of last year. Pilgrim’s Pride, the largest chicken producer in the United States, this week announced that they would be closing a processing center and almost half of their distribution centers. They cited the high cost of corn as a major culprit behind the closings and cutting their overall chicken production about 2 percent.

Since mid-March last year, the nearby corn price on the Chicago Board of Trade has surged 39 percent compared to the 83 percent in beans, 248 percent in Minneapolis wheat, and 86 percent in crude oil.

OUTLOOK: Unless we see a smaller acreage number than expected on the March 31 report, corn should continue with a “buy the break” mentality until we are more assured that the crop is in the ground. The USDA will not release an updated supply-demand balance sheet for the 2008-09 crop until May. A development in the cash grain in recent weeks may add to the violent swings of this market. Some grain companies have gone to buying grain only on the basis for any delivery beyond 60 days out. This could remove some of the players from the marketplace and prices swings may become more extreme.

Nystrom Notes: Pending Commodity Futures Trading Commission approval, effective March 28 the Chicago Mercantile Exchange will increase normal trading ranges for corn from 20 cents to 30 cents and for soybeans from 50 cents to 70 cents. Crude oil traded to a record high level of $110.98 per barrel this week as the U.S. dollar fell to its lowest level ever versus the euro and the lowest level versus the yen in a dozen years. Congress approved a farm bill extension to April 18.

        

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