The following market analysis is for the week ending April 1.
CORN — A holiday-shortened week didn’t mean any shortage of news with the release of the long awaited Prospective Planting and Grain Stocks as of March 1 reports. This week we’ll take a look at the numbers that inspired the bearish report reaction.
Corn stocks on March 1 at 7.694 billion bushels are the second highest March 1 stocks and well above the average trade guess of 7.496 billion bushels. Record stocks were in 1987 when they were 8.248 billion bushels. This week’s figure is higher than last year’s 6.954 billion bushels on hand and implies feed demand may be overly optimistic by as much as 100 million bushels. Was last year’s crop underestimated?
Are we missing some acres? Corn acres for 2010-11 were forecast at 88.798 million acres versus estimates for 89.189 million and compared to last year’s 86.5 million acres. If realized this would be the second highest corn planting number after 2007’s 93.5 million acres.
Based on the U.S. Department of Agriculture’s total acres for all crops, it’s believed we’ll see additional acres on subsequent reports. In five of the last six years corn acreage from the March report to the June report increased by 1 million to 2 million acres.
Helping to limit post-report losses was a weak U.S. dollar and rallying energy markets. The Buenos Aires Cereals Exchange increased their Argentine corn production estimate to 21 million metric tons from 20.2 mmt which lent additional pressure. Argentina’s corn harvest is pegged at 42 percent complete.
Export sales this week at 32.5 million bushels were in line to slightly better than expected. We need to average more than 30 million per week for the remainder of the marketing year to hit the USDA projection. Next week’s report will include 281,000 metric tons of corn that was sold this week to South Korea for delivery in the current marketing year.
OUTLOOK: Put on your weather caps because that’s what we’ll all be watching for the next two months. Forecasts for moisture over the coming week may limit the downside, but extended forecasts that reach into April will be more important going forward. With the addition of almost 200 million more bushels on hand than the trade thought, we’ve added cushion to the balance sheet and that’s not friendly.
A carryout this year closer to 2.0 billion bushels is already being discussed (the USDA is at 1.799 billion). Old crop corn’s trading range has moved down to $3.25 on the bottom end and $3.75 on the high end. New crop corn’s range is seen as $3/$3.50 to $4. If we experience planting delaying weather problems, rallies to $4.25 to $4.50 may be anticipated, but that’s what will be needed for a significant recovery.
Nearby corn was down 44 cents or 11.3 percent for March. This week, May corn declined 11 3/4 cents to close at $3.44 1/2 and the December contract tumbled 8 1/2 cents to settle at $3.77.
SOYBEANS — The soybean reports were in the same vein as the corn releases. Soybean stocks on March 1 were 1.27 billion bushels.
This was sharply higher than the 1.208 billion pre-report estimate, but below last year’s 1.302 billion bushel stocks number. This was in sharp contrast to the December stocks number that was below expectations. This pushed the market to give back gains made early in the week. Second quarter residual usage is now projected at a record low negative 35 million to 40 million bushels, which implies last fall’s crop may have been underestimated.
Any adjustment to 2009-10 production won’t be made until September. Ending stocks for 2009-10 may be expected to rise to the 230 million to 240 million bushel area from the current USDA forecast of 190 million bushels.
Soybean plantings this spring were estimated at a record 78.098 million acres. This compares to the pre-report estimate of 78.458 million acres and last year’s 77.5 million planted acres. Early 2010-11 ending stocks projections are running from 300 million to 700 million bushels.
The old crop-new crop inverse widened to over 50 cents prior to the report, and then retraced to a 20- to 25-cent inverse based on the large stocks number. It may not be a stretch for the inverse to move closer to even.
Argentine port workers went on strike and came off strike this week. The strike had been the impetus for higher soybean prices higher prior to the USDA reports. It was reported the port workers reached an agreement with exporters mid-week by accepting a 27 percent wage increase. This should get shipping back on track if the agreement is approved.
The Buenos Aires Cereals Exchange increased their soybean production projection to 53.5 mmt. The last USDA figure was 53.0 mmt. Argentina’s soybean harvest is pegged at 13.5 percent complete.
Soybean export sales this week were 6.6 million bushels which was below expectations.
OUTLOOK: After this week’s reports, the picture for beans is a lot more comfortable than before and price direction will reflect that fact.
Old crop soybeans now have support at $9 then down closer to $8.50; new crop support is closer to $9/$8.75 in the short term (closer to $8 in the long run). Any weather-inspired rally puts resistance in the $10 area.
For March, nearby beans were down 20 cents or 2.1 percent. This week, May soybeans dropped a dime and settled at $9.42; the November contract gained 7 3/4 cents to close at $9.25 3/4.
Nystrom’s notes: Nearby contract changes for the week as of April 1: crude oil reached its highest level this year of $85.37 before closing up $4.87 at $84.87, heating oil up 13.5 cents, gasoline up 11.5 cents and natural gas up 15.6 cents. The Dow gained 77 points this week, gold was $20.80 higher, and the U.S. dollar index was down nearly a full point. Minneapolis wheat was down 8 cents, Kansas City wheat was 5 1/2 cents lower and Chicago wheat fell a dime.
Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.
