— The following market analysis is for the week ending Feb. 12.
CORN — On Feb. 5 we left the grain markets at their lowest levels since October and the U.S. dollar index at its highest level since June. A week later, we see that buyers once again found their way into the grain markets as the U.S. dollar was marginally lower for the week.
Oversold conditions and position evening ahead of the Feb. 9 U.S. Department of Agriculture report, plus a mostly weaker dollar during the week, encouraged profit taking and new buyers to enter the market.
The U.S. dollar began the week with losses, but was able to find traction to the upside on concerns over what the European Union actually meant when they stated they would “support” Greece as they attempt to resolve their debt issues. The EU did not release any details on how this support would be implemented.
The federal government was closed for four days this week due to a significant snowstorm, but they did release a lackluster February USDA crop report on time. For the week March corn was up a dime at $3.61 1/2 and the December contract was up 10 1/4 cents at $3.97 1/4.
The USDA this month reduced the corn carryout by 45 million bushels to 1.719 billion bushels. Exports were cut 50 million bushels, ethanol use was increased by 100 million bushels and Food, Seed and Industrial use fell by 5 million bushels. World corn carryout fell 2 million metric tons even as world production grew. Argentina’s corn production was raised 2.2 mmt to 17.2 mmt. Their export estimate rose from 8 mmt to 9.5 mmt. The numbers were pretty much as expected. If the USDA is going to make any U.S. production changes to the 2009-10 crop, it will be on the March report after they resurvey select states that had significant unharvested acreage prior to the January report.
Export sales were neutral at 29.3 million bushels, bringing the year-to-date export commitment figure to 1.04 billion bushels. The updated export projection is 2.0 billion bushels. We will need to average more than 32 million bushels of sales each week for the balance of the marketing year to achieve even this lowered estimate.
For the second time this year, China unexpectedly raised their reserve requirement for banks by 50 basis points as of Feb. 25. This news propped up the U.S. dollar going into the weekend. Grains responded surprisingly well, with corn and beans maintaining closes above their five-day moving average support levels and ahead of the long President’s Day weekend (no markets on Feb. 15). The Lunar New Year celebration and Carnival, which begin this coming week, may force us to rely on outside factors for direction over the next week.
OUTLOOK: Farmer selling remained relatively light this week in spite of improving basis and board levels. A featured topic around the table is quality. Be sure and keep an eye on those bins for any problem spots — and be careful doing it. While our support levels at $3.45 and $3.15 1/2 (March contract low) are still in play, I would move first support up to $3.50. Resistance stands at $3.68 1/4 and $3.94. Fundamentals are bearish, but even a bear market will get a bounce now and then.
SOYBEANS — Soybeans benefitted from the same positive influences as the corn this past week, specifically the gyrations of the U.S. dollar, global economic news and the USDA report. China will be on holiday to celebrate the Lunar New Year all next week, so little news will be expected from that region.
The USDA’s refreshed report pushed crush up 10 million bushels and exports up 25 million bushels. The resulting carryout of 210 million bushels is down 35 million from last month. This was within the trade’s expectations. Brazil’s soybean production number was marginally increased from 65 mmt to 66 mmt and their export estimate went from 24 mmt to 25.3 mmt. Argentina’s production figure was left unchanged at 53 mmt. Their export forecast fell 2 mmt. South American weather has become a moot subject with few to no areas of concern. World ending stocks were virtually unchanged at nearly 60 mmt.
Export sales in soybeans were disappointing this week at 11.5 million bushels while bean oil sales of almost 45,000 tons were impressive. Total soybean commitments are up to 937 million bushels when the new export forecast is 1.4 billion bushels.
OUTLOOK: The $9 support level in the March bean contract wasn’t even tested this week; but we’ll leave support there. Resistance has been pegged at $9.55 for quite some time and we have yet to push through it. Secondary resistance is closer to $9.88 in the March contract.
Nystrom’s notes: Nearby contract changes for the week as of Feb. 12: Minneapolis wheat up 2 cents, Chicago up 13 1/4 cents and Kansas City up a dime. Crude oil was up $2.94 at $74.13, heating oil up 4 1/2 cents, gasoline up almost 4 1/2 cents, natural gas up 4 3/4 cents, gold up $39.80 per ounce, Dow up 87 points and the U.S. dollar index down 0.14 points. The USDA Outlook Conference was to meet Feb. 18-19. The USDA released baseline projections this week, but they were assembled back in November so we’ll skip any discussion of them here.
Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.
