Published: August 13, 2008 04:50 pm            

Grain Outlook: Fight for acres to continue in ’09

Originally published in the August 8, 2008, print edition.

The following market analysis is for the week ending Aug. 1.

CORN — It was announced this week that penalty-free early release from the Conservation Reserve Program would not be allowed. This will make for an interesting scenario next year as the fight for acres between commodities continues.

It was played out in the markets this week as December 2008 corn was down 11 1/2 cents for the week and December 2009 was up 3 cents. December 2008 corn traded a range of $6.24 3/4 to $5.81 1/2 this week. New crop corn had its lowest settlement since March.

As long as we’re talking about events in Washington, D.C., it doesn’t look like any legislation aimed at curbing “excessive speculation” in any of the markets will be passed any time soon. Without either an agreement or compromise on the off-shore drilling issue, bills addressing regulation changes have gone nowhere. We will probably have to wait until after Labor Day for further discussions.

Fund liquidation continued this week. Outside markets were relatively flat: crude oil was up $1.84/barrel, heating oil fell 8.6 cents/gallon; gasoline was up 5.2 cents/gallon on smaller inventories than expected, and the U.S. dollar index was up over 45 points. The CRB Index experienced its biggest monthly loss in July since 1980, down 10 percent. The U.S. unemployment rate reached its highest level in four years at 5.7 percent. Money may be shifting due to the fear of a slowing economy and demand destruction.

Corn staged a recovery off the previous week’s lows in the first half of the week as Midwest weather looked fairly hot and dry. Later in the week the forecast looked better for pollination with cooler temps and showers anticipated. December corn closed at its lowest level since March. On Aug. 5 Informa Economics is scheduled to release their updated supply-demand table which will reflect new estimates for all categories.

May ethanol production in the United States was reported at 779 million gallons. This is more than a 47 percent increase from last year. Ethanol stocks at the end of May were pegged at 506 million gallons, up 11 million gallons in April. Any decision from the Environmental Protection Agency on the requested waiver from the Renewable Fuels Standard for Texas has been delayed. This may mean an increase in the ethanol usage line on the upcoming report.

Exports this week were a measly 2.5 million bushels. We need to average just under 28 million bushels per week to achieve the current U.S. Department of Agriculture projection. The new crop sales number was impressive at 32.5 million bushels.

OUTLOOK: Unless we see a weather pattern change that is severe enough to cut yield potential, the highs in December corn may well be behind us. It may depend on what the soybean weather is this month on how low corn prices may have to go to find support.

If soybeans encounter problems, their strength may keep corn prices above $5.40; bounces could propel us back closer to $6.30-$6.50. If no problems occur, don’t rule out $5.00 before the end of the year. Will we be looking at 152-157 bushels per acre average yields this fall?

SOYBEANS — The absence of Chinese buying, weather threats or new fund buying left beans to flounder. November beans closed at its lowest level since May. For the week, November beans were down 21 1/2 cents after trading a range of $14.21 to $13.51 3/4.

Other outside influences discussed in the corn section apply to soybeans as well. The CRP decision was a major reason that November 2009 soybeans gained 19 1/2 cents on the week. Under the normal program, 1.2 million acres will expire this September and 19.5 million acres over the next five years.

In Argentina, the government is now working to raise the flat export tax on soybeans from 35 percent to 40 percent and lower the tax on corn and wheat by 5 percent each. If successful, this will make gaining soybean acres next year more difficult. It may also add to the possibility of more strikes or supply disruptions. In Brazil, the real reached its highest level in nine years. This could influence any soybean acreage expansion decisions, which the world needs, next year.

Soybean export sales came in at 10 million bushels this week. We only need 6 million bushels per week to attain the USDA projection. For the new crop, we added 16 million bushels in sales.

OUTLOOK: The same scenario exists in soybeans as it does in corn; weather is the headline. If it cooperates, lower prices lie ahead in the $12.85 to $12 area; if it doesn’t, we could retest the $15 area. While private crop estimates will be published in the coming week, most are expecting projections be in the 41-43 bu./acre area.

Nystrom’s notes: The Spring Wheat Tour this week pegged the North Dakota spring wheat yield at 37.7 bu./acre versus 37.3 bu./acre last year. The next USDA report will be released on Aug. 12. Look for private estimates to begin coming out this week.

        

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