The Land — The following market analysis is for the week ending Jan. 15.
CORN — We’ll pick up this week right where we left off last week with the then-unanswered question, “Could this be setting corn up for a classic ‘buy-the-rumor, sell-the-fact’ scenario?”
Evidently, yes. The much-anticipated fund rebalancing buying was not enough to offset a definitely bearish U.S. Department of Agriculture corn report. Corn locked down the 30-cent limit in post-report trading, which added a day to the rebalancing calendar.
This had no effect in slowing buyers’ rush to exit positions. It was estimated in the first four trading days this week that large speculators sold 47,000 corn contracts.
For the week, March corn sliced through my lower limit benchmark of $3.80 to set the week’s low at $3.68. March corn was down a staggering 51 1/2 cents this week at $3.71 1/2. This is the largest weekly loss in six months.
It’s unusual with the longer trading hours and electronic platform, but March corn left a gap on the charts from $3.92 1/2 to $3.85 1/4. The December corn contract was down a whopping 43 cents for the week and settled at $4.06 per bushel.
Before we review the USDA final crop report and grain stocks reports, be aware that the USDA did issue a statement that they may be resurveying growers due to the large area of unharvested crops. Any updates will be made on the March 10 supply-demand sheets.
On Jan. 12, the USDA made the following adjustments: increased planting acreage by 100,000 acres to 86.5 million; raised harvested acres 300,000; jumped yield to a record 165.2 bushels per acre (up 2.3 bu./acre); production upped 230 million to 13.151 billion bushels; feed increased 150 million; Food, Seed and Industrial down 10 million; and ending stocks up 89 million bushels at 1.764 billion bushels.
There was no change to the 4.2 billion bushels of corn for ethanol forecast. The biggest surprise was the addition to the yield number since the trade had been expecting a cut of 0.4 bu./acre to 162.5 bu./acre.
Don’t forget about the wheat available to compete with corn for feed demand. Additionally, feed wheat from Brazil is presently headed to Wilmington, N.C., and the southeast feed sector. Ending stocks in wheat were upped 76 million bushels to 976 million bushels. Corn stocks as of Dec. 1 were 10.934 billion bushels, well above the 10.722 billion estimate. World corn ending stocks for this year were pegged at 136.2 million metric tons, up nearly 4 mmt from last month’s forecast.
Wheat seeding for 2010 was lower than projected, which sets the stage of additional acres of corn and soybeans this spring.
This week’s export sales were dismal at only 12.9 million bushels, but kept us 19 percent ahead of last year. Total exports this year are projected by the USDA to be up 10 percent over last year. Late this week, South Korea bought nine cargoes of U.S. corn which will be included on next week’s report. Ethanol producers were smiling this week with corn prices down 12 percent and ethanol prices only down 7 percent.
OUTLOOK: Look for exports to show marked improvement next week as buyers took advantage of corn prices at levels not seen since early October. Farmers have slapped the bins shut, so we could now expect a new trading range to be established for a few weeks.
However, growers will be on the lookout for any rally to sell since many feel they missed the recent opportunity. South America weather is good and once buyers’ appetites are filled, corn may be looking at another leg lower. Next support is seen at $3.45, then $3.15 1/2 (March contract low). First resistance is the 100-day moving average at $3.82 1/2, then the gap at $3.92 1/2.
SOYBEANS — A quote from last week, “It’s hard to get friendly with a market that looks like its best export sales days are behind it and the competition’s crop is developing well” sets the stage for this week’s commentary.
The Final USDA Crop Report for the 2009 Crop and Grain Stocks as of Dec. 1 wasn’t nearly as bearish as the corn reports were, but they were bearish. Soybeans couldn’t fight the tide of sharply lower grain and energy markets, as well as a firming U.S. dollar.
March soybeans were down 48 cents for the week at $9.74. The November contract dropped 56 3/4 cents to $9.42 1/4 per bushel.
South American crop production numbers were increased as expected this month with Brazil now projected to grow 65.0 mmt, up 2 mmt from last month, while Argentina’s estimate was left unchanged at 53.0 mmt.
Heat moving into Argentina next week will be monitored, but it’s too early to know if bean and/or corn yields will be adversely affected. The majority of the South American soybean harvest is still a couple of months away.
On the U.S. balance sheet: harvested acres dropped 200,000; yield up 0.7 to a record 44.0 bu./acre; production up 42 million to 3.361 billion bushels; crush raised 15 million; exports increased 35 million; residual up 2 million and ending stocks down 11 million bushels to 245 million bushels (estimates were 235 million bushels). World ending stocks at 59.8 mmt are 2.8 mmt higher than last month.
China’s import estimate for this year was increased 1 mmt to 42 mmt. Soybean stocks as of Dec. 1 were 2.337 billion bushels versus 2.415 billion expected. The National Oilseed Processors Association bean crush for December was a record for any month at 164.4 million bushels. The oil yield at 11.04 pounds per bushel is the same as last month, but below estimates.
Export sales this week were in line with expectations at 27.5 million bushels (China accounted for 70 percent of this week’s sales and now has bought 20.28 mmt). We’re 48 percent ahead of last year’s number with 1.211 billion bushels committed for export.
As the week came to a close, we did hear talk that China had switched a February U.S. bean cargo to April out of South America. Probably the first shot across the bow.
OUTLOOK: While we may still have some time before South American soybeans are ready for export, it’s beginning to feel like China may have satisfied their thirst for soybeans. Without demand, beans will suffer. First support in March soybeans lies at $9.69, then $9.55 3/4. First resistance is at $9.93 3/4, then $10.14 1/4.
Nystrom’s notes: Nearby contract changes for the week as of mid-afternoon Jan. 15: Minneapolis wheat plunged 54 1/2 cents, Chicago plummeted 58 1/2 cents and Kansas City wheat posted a 48 cent drop. Crude oil was down $4.75 at $78, heating oil down 15.4 cents, gasoline off 11 cents, natural gas 5.8 cents lower, gold down $7.60, the U.S. dollar index down 0.42 at 77.23, and the Dow fell 21 points to 10,597. Grain markets are closed in observance of Martin Luther King Jr. Day on Jan. 18.
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Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.
