The following market analysis is for the week ending Feb. 5.

CORN — Corn pushed to price levels not seen since October this week as the March corn contract touched $3.47 1/2.

The U.S. dollar was a catalyst as it soared to a seven-month high, up 0.75 points for the week on concerns that global economic recovery may take more time to develop. Greece this week unveiled their plan to improve their balance sheets, but many in the trade doubt their ability to execute. This pushed the euro sharply lower against the U.S. dollar.

Improving conditions in South America were seen as providing mild pressure. Informa Economics is pegging Brazilian corn production at 53.5 million metric tons versus the U.S. Department of Agriculture’s 51.0 mmt forecast and up 0.6 mmt from their last estimate. They are anticipating Argentina’s corn production at 18.2 mmt versus the USDA’s 15.0 mmt and 2.7 mmt above their estimate last month.

Market volatility is not confined to the grain markets. March heating oil, which diesel prices are based on, traded nearly a 12-cent range on Friday, traded a range of 23 cents for the week and closed down almost 4 cents for the week. Nearby crude oil in just three trading sessions traded a range from $78.02 to $69.50.

On Feb. 9 the USDA was to release their normal supply-demand balance sheets. Traders will be focusing on two items in corn: corn exports and South American production. Total U.S. exports are projected to increase by 10 percent this year. Thus far, we are 17 percent ahead of last year but the pace is expected to decline as South American supplies hit the market.

Ending stocks of corn on the February report have not changed in the last three years. The average trade guess for ending stocks is 1.747 billion bushels, with a range of 1.602 to 1.815 billion bushels. On the January report, ending stocks were 1.764 billion bushels.

Export sales were in line with expectations this week at 36.4 million bushels. Total export commitments are 1.15 million bushels. We need to average just over 34 million bushels per week to reach the current USDA export projection.

OUTLOOK: Growers still hold significant supplies, demand is suspect, outside markets are not supportive, and funds are net long — a recipe to limit rallies, which would probably have to be technically led. Our support levels at $3.45 and $3.15 1/2 (March contract low) are still in play. Resistance stands at $3.72 and $3.85 1/4. For the week, March corn closed down a nickel at $3.51 1/2 and the December contract was down 3 3/4 cents at $3.87.

Continue to monitor outside markets and watch for any surprises on the February report. The downtrend remains intact. Also, don’t forget to take a peek at your corn bins for any quality issues.

SOYBEANS — Seasonality didn’t hold true for beans as they took a small hit to the downside this week which stretched into new lows for the move. As much as anything fundamental, including nearly ideal growing conditions for South America and declining export sales, outside markets provided enough negative inputs to limit any rally potential.

Fundamentally, Informa Economics raised their South American bean production estimates to 66.5 mmt for Brazil and 54.0 mmt for Argentina. The January USDA report was at 65 and 53 mmt respectively. China will reportedly sell over 200 million bushels of beans from their reserves.

The February USDA report is expected to show increases to the Argentine and Brazilian soybean production forecasts. Also of interest will be the crush category. The September-December bean crush is up 10 percent over last year, while the last USDA estimate indicated the crush to only grow by 3 percent. The pace of U.S. bean exports is running 43 percent ahead of last year.

Any change in demand may have to wait to see how the huge South American crop will affect demand for U.S. soybeans. Safras this past week estimated beans in Brazil at 16 percent mature versus 8 percent on average.

Bottom line, expectations are that the soybean carryout will fall on this coming week’s soybean balance sheet. The average trade guess is 217 million bushels with a range of 170 to 240 million bushels. The USDA in January predicted carryout at 245 million bushels.

The Environmental Protection Agency’s finalized regulations for RFS2 report this week were slightly friendly to the oil side of the soy complex as they will be combining the 2009/10 mandates to 1.15 billion gallons for 2010. They left 2011 unchanged at 800 million gallons, and 2012 at 1.0 billion gallons.

The $1-per-gallon biodiesel blending credit that expired at the beginning of 2010 has not been reinstated. This leaves biodiesel production unprofitable. There were no changes in the corn ethanol mandate and changes made to ethanol plant emission requirements shouldn’t impact production in the long run.

This week’s export sales were a marketing year low at 14 million bushels. Total export commitments are 1.3 billion bushels or 93 percent of the USDA export forecast. We need to average just 3 million bushels per week to achieve the USDA projection, but sales are expected to be sharply curtailed once South American supplies are ready for shipment. China was again the main buyer with 69 percent of the sales, which included one cargo cancellation and three cargoes switched from the unknown destination category.

OUTLOOK: While support at $9 was hit but not penetrated, we’ll drop support in the March soybeans to $8.88, then $8.54. The downtrend is still in place and if the dollar continues to rally and energies fall we could edge closer to $8.25 longer term. Resistance is pegged at $9.55. For the week, March beans at $9.13 1/2 were down a measly half cent and traded a range of $9 to $9.34. The November contract was 7 3/4 cents lower at $9.03 1/2.

Nystrom’s notes: Nearby contract changes for the week as of late afternoon Feb. 5: Minneapolis wheat up 1 3/4 cents, Chicago wheat down 3/4 cents, and Kansas City wheat down 2 1/2 cents. Crude oil was down $1.70, heating oil down 3.8 cents, gasoline down 2.7 cents, natural gas up 38.5 cents, gold down $18, Dow off 55 points, and the U.S. dollar index was up 0.75 points. The USDA February Crop report was to be released at 7:30 a.m. Central time on Feb. 9.

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Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.