April 25, 2008 01:05 pm
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The corn and soybean markets continue to move in wide ranges.
In a four-week period what the market lost the first two weeks it gained back in the last two weeks. This is probably typical of what we will see the rest of the spring and summer.
The market will be sensitive to any changes in production or policy. The outside markets or other outside influences that are not easy to track everyday will probably pop up when we least expect it.
The U.S. Department of Agriculture did not surprise us too much with the acreage intention report on March 31. Corn came in a little under what the trade estimate was and the new projection is 86 million acres for 2008. The big question will be how fast will the crop get planted and will it be considered on time. Will the crop end up on the trend line or higher next fall?
The soybean acreage estimate came in at 74.8 million acres, up from 63.6 million acres last year. The soybean estimate could grow depending on how the corn planting progress goes. The wheat acreage estimate is up 3.4 million acres over last year at 63.8 million acres.
The key to the market remaining strong is how well the end users continue to buy high-priced commodities. The high prices have started to decrease margins in all aspects of the grain business as well as livestock and ethanol.
The hog business is suffering tremendously because of high grain prices as well as other problems in their business. The poultry industry has also begun to cut production in response to feed costs.
At some point the economics of all things that rely on grain become unprofitable. As the profits disappear the use of the products will decline which results in more product left on the market. The market has a way of taking care of itself and economics will win out.
There are many questions on basis. It appears that corn basis has gotten wider in the last two weeks and soybean basis levels are improving. Basis levels will vary with the demand of corn or soybeans in an area. The market might perceive that corn supplies are adequate and soybeans are spoken for.
The best way to understand basis is getting to know what grain is moving and what the demand is in a given area. Basis levels could be wide based on the ability of an elevator or feed company to margin grain purchases. Many facilities are running short of capital to margin grain positions which do not allow them to continue to buy grain. The market took a break but if it continues to move higher capital will become an issue again.
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