Published: August 21, 2008 03:11 pm            

Grain Outlook: Corn recovers after going low enough

Originally published in the August 22, 2008, print edition.

The following market analysis is for the week ending Aug. 15.

CORN — The post-August crop report trading sessions sent a signal that we had pushed prices low enough for the time being.

The recovery began when we didn’t push lower on a bearish report. The U.S. Department of Agriculture surprised the market with a huge 2008-09 yield jump to 155.4 bushels per acre, up from 148.4 bu./acre on the July report. This was the first survey based estimate of the year.

Planted corn acres were cut 300,000 acres while harvested acres stepped up 400,000 acres. Production is now forecast at 12.288 billion bushels (the second largest ever) with a carryout of 1.133 billion bushels, an increase in ending stocks of 300,000 bushels.

Tempering the ending stocks number from the increase in production were increases in usage across the board (in million bushels): feed up 100 and ethanol up 150. The increase in ethanol implies a 37 percent leap over last year and what many feel may be too aggressive.

The stocks-to-use ratio was bumped up from 6.7 percent to 8.9 percent, but still under the 2007-08 stocks-to-use ratio of 12.3 percent. The average national farm price was cut to $4.90 to $5.90, down 40 to 60 cents from the July report.

The initial negative reaction didn’t hold and by the end of trading on report day December corn had put in a key reversal higher on the charts (higher high and lower low than the previous day’s range, and closed higher than the previous day’s high). This pushed sellers to the sidelines and buyers to the forefront.

At mid-week, corn edged higher to lock limit up when at least one economic analyst recommended buying corn after the strong key reversal technical signal. The whiplash came when corn traded limit down during the session on Friday. Volatility has not disappeared from these markets.

The current weather forecasts are not predicting any threatening conditions for the next week. As corn continues to catch up to “normal” development, the threat is lessened, but it hasn’t evaporated.

Any perceived frost threat will underpin prices. According to one of our private forecasters, the earliest sub-32 degree day since 1970 in New Ulm was Sept. 13, 1975, and in Iowa City, Iowa, it was Sept. 23, 1983.

The U.S. dollar index was up over 5 percent versus the euro so far this month, trading to levels not seen since February. This is the fifth weekly gain for the dollar versus the euro, the longest winning streak in over two years. This bearish influence on grains was an integral factor in the weakness late in the week as longs eyed the exit door.

Exports were good this week at 15 million bushels for old crop and 37.4 million bushels for new crop. We have 15 percent of the 2 billion bushel 2008-09 export projection on the books.

There was export business done prior to the report, but South Korea passed on a tender after the limit-higher session.

Broiler egg sets were below par at a dismal 95 percent of last year and chick placements were 98 percent of last year.

OUTLOOK: Without the threat of frost, the world is well supplied with grain (world corn 2008-09 ending stocks were forecast to swell to 112.38 million tons on this week’s report), but every market is entitled to a bounce.

The strength in the U.S. dollar has also decreased the attractiveness of holding long commodity positions as a hedge against inflation. December corn could consolidate for the balance of the month, bouncing from one forecast to the next in a $5 to $5.81 range.

For the week, December corn was up 31 1/4 cents, trading a range of $5.04 1/2 to $5.79. This is the first weekly gain since late June.

SOYBEANS — The soybean report actually was friendly when compared to the pre-report guesses, and the market responded accordingly.

The USDA report opened a few eyes when they lowered the 2008-09 soybean yield estimate from 41.6 bu./acre to 40.5 bu./acre. Planted acreage was increased 300,000 acres and harvested acres were pushed up 1.2 million acres. The fourth largest crop ever of 2.973 billion bushels is now forecast with ending stocks at 135 million bushels.

The stocks-to-use ratio for 2008-09 was unchanged at 4.6 percent, roughly the same as this year. The national average farm price dropped 50 cents to $11.50 to $13 for 2008-09. November beans scrambled higher, locking limit up on Wednesday and touching limit down on Friday.

Export sales were disappointing with old crop at a negative 1.8 million bushels on cancellations and new crop at just 4.4 million bushels. We have sold 24.5 percent of the total new crop export projection.

The National Oilseed Processors Association July crush number was lower than expectations at only 133 million bushels while oil stocks were near estimates at 2.4 billion pounds.

Reports that China had canceled both soybean and palm oil purchases, in conjunction with a sharply higher U.S. dollar, put a negative spin on prices as the week drew to a close. It was thought that up to five soybean cargoes and 150,000 metric tons of palm oil had been canceled by China.

OUTLOOK: After the smaller yield estimate this week, I’ll have to raise the upper end of the range to $13.21 for November beans with $11.68 as support. November beans were up 38 1/2 cents this week, the first weekly gain since early July, and traded a $1.39 weekly range.

Nystrom’s notes: The U.S. dollar index gained $1.04 this week, a big gain. In energies, U.S. drivers drove 4.7 percent fewer miles in June. Crude oil was down $1.43, heating oil down a penny, and gasoline down 6 3/4 cents. The United States will reportedly deliver humanitarian aid to ally Georgia and has asked Russia to respect Georgia’s territory.

        

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