The following market analysis is for the week ended Dec. 31.
CORN — As we recover from another grand start to a new year, let’s take a peek at last year’s action. The lead corn contract closed on Dec. 31, 2008, at $4.07 and this year it closed at $4.14 1/2. This is a change of 1.8 percent or $.075 per bushel. The front month corn contract ranged from $2.96 3/4 to $4.50 during the calendar year. For the week, March corn was 5 3/4 cents higher at $4.14 1/4. December 2010 corn settled for the week at $4.40 3/4, up just 1/2 cent on the week.
Fund buying was a noted feature yet again this week as the trade anticipates index rebalancing after the first of the year. Traders are estimating that funds will need to buy between 55,000 and 60,000 corn contracts in early January to get their positions in balance. While some of the recent buying has been a part of this, the scenario is viewed as unlikely; a portion of the recent buying could be players positioning themselves to take advantage of the expected funds’ actions.
Export sales were in-line with estimates this week at 30.4 million bushels. This puts total export commitments 19 percent ahead of last year. Exports for the year are anticipated to increase 10.3 percent this year. We need to average nearly 34 million bushels in sales per week to fulfill the latest U.S. Department of Agriculture forecast of 2.05 billion bushels.
Argentina’s corn production estimate was increased by the Buenos Aires Grains Exchange to 15.8 million metric tons. The USDA is carrying Argentina’s corn crop at 14 mmt. Argentina is the third-largest corn exporter in the world and was estimated to have 88.6 percent of this year’s crop planted as of Dec. 31. Weather forecasts are good for crop development.
OUTLOOK: The direction of money flow will bear a huge influence on prices as we flip the calendar to a new year. The anticipation that fund rebalancing will trigger a run-up in corn prices has been a popular topic for a few months and should be largely figured into the market. The final week of 2009 saw corn prices push to the upper end of the trading range (this week’s high was $4.18 3/4) that has been in place since mid-October when March corn approached $4.25.
In addition to fund money, traders will also be looking to the Jan. 12 USDA Final Crop Production report with expectations that yield will be raised, harvested acres cut slightly, and ending stocks increased. If realized, this report could temper upside potential. The $3.70-$4.25 range is still in place ahead of the January report. If the $4.25 is broken, $4.50 is the next target, but this is given slim odds if the report raises ending stocks.
SOYBEANS — Beans started the week off like gangbusters, just like they have for the last seven out of nine Mondays. The average uptick on the seven higher Mondays has been 18.4 cents. It looks like someone’s buying program has a strong tendency to buy on Monday. Of the last nine Tuesdays, beans were up four times, down four times, and unchanged once. Action quieted the balance of the week with March soybeans closing out the week up 40 1/2 cents at $10.48 1/2. November 2010 soybeans were up 25 cents this week at $10.14 1/4.
Chinese buying continued once again this week when they bought 348,000 metric tons of U.S. beans for the 2009-10 marketing year. This occurred in spite of reports that they will have up to 2 million metric tons of surplus beans in the first quarter of 2010. It’s estimated that China bought over 175 million bushels of soybeans in December alone, a monthly record.
Brazilian exportable beans are competitive with U.S. beans for February delivery forward, and there are no perceived problems with this year’s South American soybean crop. Look for the USDA to begin to increase Brazil’s 24 mmt bean export projection. Weather has been very good for crop development so far in both Argentina and Brazil.
Export sales were decent this week at 29.4 million bushels with 54 percent of the total going to China. Sales remain 55 percent ahead of last year. We only need 6.4 million bushels of sales per week to reach the latest USDA’s export projection of 1.34 billion bushels. There were also 10 million bushels of new crop sales made this week. We have sold just over 17 million bushels for 2010-11 versus 1 million sold last year at this point.
Since fund rebalancing was mentioned in the corn, we’ll touch on it in the beans, but the impact in soybeans is expected to be less dramatic. The trade is estimating that funds only need to buy approximately 14,000 soybean contracts to put their positions in balance.
OUTLOOK: This year the lead soybean contract topped out at $12.91 1/4 and saw a low of $8.43. For the year, the front month contract was 67 1/2 cents higher or up 8 percent (closed at $9.72 1/4 on Dec. 31, 2008). Anticipated fund activity may have already been factored into prices after this week’s rally. Downside potential may be more likely ahead of the January USDA report. Resistance in the March soybean contract is near the December high of $10.84 with support at the December low of $9.92 1/4. We’ll see if this month’s report throws us any surprises.
Attention will focus on South American weather and U.S. exports once the report is out of the way, with potentially negative price consequences if South American crop conditions hold and our exports pace declines. If our export pace doesn’t fall back after the first quarter, we’ll have to reevaluate for a small carryout number.
Nystrom’s notes: Crude oil had its biggest yearly increase since 1999. The lead month went from $44.60 on December 31, 2008 to $79.36 on Dec. 31, 2009. This was a $34.76 increase or up nearly 78 percent for the year. Gold hit a record high in 2009 at $1,227.50 per ounce. Nearby contract changes for the week: crude oil up $1.31 at $79.36, heating oil up almost 6 cents, gasoline up 4 1/4 cents, natural gas down 12.6 cents, gold down $8.60, the U.S. dollar index up .125 at 78.30, and the Dow was down 101 points at 10,365. The Quarterly Grain Stocks report and the final 2009-10 Crop Production report will be released on Jan. 12.
