— Editor’s Note: Tim Emslie, Country Hedging market analyst, is sitting in this week for Phyllis Nystrom, the regular “Grain Outlook” columnist.
The following market analysis is for the week ending Dec. 18.
SOYBEANS — U.S. dollar strength hit the soybean market late in the week, sending the January contract down 23 cents for the week.
After spending most of the fall as the punching bag of world currency markets, the U.S. dollar has finally seen events swing in its favor during December. That trend accelerated this week with word of further debt downgrades for Greece.
The monthly Fed meeting yielded no interest rate change as expected and held the extended low rate policy in place, but some of the accompanying language offered some hints of improving conditions that would lead eventually to tighter monetary policy.
Early in the week, fundamental news was positive, with the National Oilseed Processors Association crush report coming in higher than expectations at 160.3 million bushels, about 7 million bushels above expectations. Domestic crush margins were quite good during this year’s extended harvest, accounting for the high usage. Margins have backed off since then with farmer sales slowing down.
Weekly export sales were again outstanding at 34.3 million bushels. U.S. export commitments to China now total 18.2 million metric tons, and with an additional 2.8 committed to unknown, China looks to be reaching the upper limit of what they will take from the United States.
Weather conditions in Argentina remain favorable with sufficient rainfall to get the crop going. The soybean crop is 80 percent planted there according to the latest report. Southern Brazil has seen a needed dry spell.
An additional negative factor this week was the increasing likelihood that Congress will not meet the Dec. 31 deadline to extend the biodiesel tax credit due to pending health care legislation. With that uncertainty out there, soy biodiesel production in January is likely to slide even though when Congress does get around to voting it will likely cover production retroactively.
OUTLOOK: The January contract traded down to one-month lows at the end of the week. Sellers have been reluctant to push prices below the $10 level due to the strong export demand. Look for support there ahead of the holidays.
After New Year’s Day, South American weather will set the tone.
Trivia note: Nearby beans have been up on eight of the last 10 trading days before Christmas.
CORN — Corn saw a quieter week, with the March contract closing down 6.75 cents for the week. Limited fundamental news allowed the dollar strength to push corn lower along with the other agricultural commodities.
The corn harvest continues to plod along at only 92 percent as of Dec. 13, but Corn Belt weather didn’t offer any additional information as to where final production will be this year.
A private analyst came out with a production estimate 47 million bushels above the last U.S. Department of Agriculture estimate based on a higher yield and lower harvested acreage. The same analyst projected next year’s corn acreage up 3.2 million acres, while projecting soybean acreage down 0.5 million acres.
The current bean-corn ratio of 2.31 slightly favors soybeans based on historical patterns.
Ethanol margins took a hit this week. Estimated gross margins fell to the lowest level since early October as crude oil dipped below $70 before recovering. On the positive side, Valero purchased plants in Indiana and Ohio that should increase production when the sale is finalized. Valero now holds 9 percent of U.S. ethanol production capacity.
OUTLOOK: The late week sell-off in corn filled the downside gap left on the continuous chart when the December contract expired. The broad range since October has been roughly between $3.60 and $4.10. Look for a narrower range of $3.80 to $4.10 to provide support and resistance ahead of the January supply-demand numbers from the USDA on Jan. 12.
Trivia note: Nearby corn has been up on seven of the last 10 trading days before Christmas.
