April 25, 2008 01:08 pm
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The following market analysis is for the week ending April 18.
SOYBEANS — Beans were a moving target this week, but in the end posted a gain on the week of 27 3/4 cents in the July contract and 18 1/2 cents in the November contract.
It was a choppy climb. Worry about the possibility that the strike in Argentina — suspended by the four farmer groups until May 1 to help facilitate talks with the government — may resume early was supportive. Reports in the news surmised that tensions were, in fact, increasing.
At the center of the dispute between Argentine farmers and the government is the switch to a fixed tax on soybean exports of 45 percent.
Basis levels have continued to improve this week to encourage beans into the pipeline to fulfill the sales demand, a portion of which are new sales as a result of the shipping delays in Argentina and Chinese demand.
Wet conditions across the Midwest have doused early corn planting ideas. This would usually lead to more bean acres being planted than initial estimates indicated. This year may see some of that switch, but availability of quality bean seed may curb that number this year versus past years. If corn planters begin to roll in earnest before May 1, and the corn-bean ratio sticks close to 2.1, any switch should be close to average.
China continued to buy beans this week as they restock; they bought 13.7 million bushels this week. Total U.S. export sales this week were in line with expectations at 17.5 million bushels, bringing total commitments to 96 percent of the current projection. Crude oil rose to a record $116.89 per barrel this week as the U.S. dollar hit a record low versus the euro before rebounding late in the week.
OUTLOOK: Support will continue to depend on weather, China’s appetite for beans, and Argentina’s farmer-government situation. If Argentina’s shipping returns to normal sooner than expected, this would have a limiting to negative effect on bean prices since U.S. beans are uncompetitive price-wise versus South America.
Near-term support in the July comes in at $13.20 and resistance at $14.15. The range for November beans is estimated at $12.15 to $13.25. Big swings daily or even hourly don’t seem to faze traders, so get used to increased volatility at least through the spring. For example, since April 1, July beans are up $1.43 and November is $1.33 3/4 higher.
CORN — Wet, cool conditions have kept farmers twiddling their thumbs, itching to get corn seed in the ground. If forecasts develop as broadcast, planters should begin rolling by the 20th, but still in limited areas and in cool soil.
Planting progress as of April 13 was 2 percent complete versus the average of 7 percent. Progress by the 20th has been estimated to only increase to 8 percent to 10 percent, falling further behind the 17 percent average by April 20. The average planting progress by April 27 is 35 percent and 50 percent by May 1. An old cliché that “you lose a bushel a day after the 10th of May” has merit according to statistics.
The U.S. corn yield has never averaged more than 145 bushels per acre unless three-quarters of the crop was planted by May 12-14. This is possible, but we’ll need some clear sailing to get there. At least one private forecaster is predicting temperatures 8 percent cooler than last year and the coolest summer since 2004 for the Midwest due to La Niña.
The uptrend in corn led to record prices for this week. December corn hit $6.32 while the July 2009 contract soared to $6.47. Caution over weather delays and new business kept the “buy setbacks” mentality in place. Corn basis has been flat to slightly weaker.
Exports were neutral at 34.2 million bushels and continue to run at 23 percent over last year. Total commitments for the year are up to 2.16 billion bushels to stand at 86 percent of the U.S. Department of Agriculture export forecast. New-crop sales of 2.1 million bushels bring new crop commitments to 81 million bushels. Broiler egg sets were down 1 percent versus last year and are lower than last year for the third week in a row. Chick placements were 1 percent greater than last year.
OUTLOOK: Weather and planting progress are the focus and market drivers. The next short-term upside objective for the July is $6.25/$6.50 and for December contract is $6.50, then $7 if planting delays are extended. Since April 1, July corn has been sideways, only posting a 15 cent gain. December corn has been trending slowly higher, up 27 3/4 cents.
Nystrom Notes: The U.S. House passed a one-week extension of the farm bill to April 15, but it’s unclear whether the president will sign it or not. The next USDA reports of major importance are the June 30 Acreage report and Grain Stocks report.
Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.
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