Phyllis Nystrom

The following market analysis is for the week ending Dec. 28.

SOYBEANS — What would a week be without another new contract high in soybeans? Soybeans once again set a 34-year high in the nearby contract as January climbed to $12.30 and the March contract hit $12.48. The all-time high in soybeans was $12.90, set in June 1973.

In a holiday-shortened week, when many traders are occupied elsewhere, trading extremes were expected. This is now the fourth time in five years that March beans have closed higher the day after Christmas. This year was by far the largest move as the March contract closed 40 1/4 cents higher.

The catalyst for this startling move was a change in the rain forecast for Argentina. In the weekend prior to Christmas, Argentina received 1 to 2 inches of rain with 65 percent coverage. However, the outlook for additional rain between Christmas and New Year’s was erased. This brought buyers to the market and kept sellers on the sideline.

Argentina’s crop is perceived as getting smaller, not larger. Brazil’s soybean crop is in generally good shape, but Safras dropped their Brazilian bean production estimate from 60.5 million metric tons to 60.36 mmt. In a year when the world needs to attract more bean acres to meet demand, any hiccup in anticipated production will be met with sharp reactions. This week was no different.

The U.S. dollar has fallen versus the Euro for six straight sessions, adding to the firm tone of the market. Sharply higher energy prices were reflected in sharply higher soyoil prices which also lent support. Palm oil set another record high this week as well.

Exports this week were 25.1 million bushels, which were on the low end of guesses. Total commitments stand at 760.2 million bushels or 76 percent of the U.S. Department of Agriculture export forecast. New crop sales were 2.9 million bushels this week.

OUTLOOK: Soybeans ramped up the excitement this week, gaining 35 1/2 cents for the week as of this writing and prior to month, quarter and year end. March beans have closed unchanged or higher in 15 out of the last 19 trading sessions. Soybean prices are up approximately 82 percent in the front month since the end of 2006. How fund repositioning will affect all grain prices is uncertain and will keep traders on edge for another couple of weeks.

CORN — March corn set another new contract high at $4.57 as of this writing. Corn closed up 8 1/4 cents the day after Christmas, making it five years straight that it has closed higher on that date, and setting the tone for the week. March corn has closed higher or unchanged 18 out of the last 19 sessions. December 2008 corn set a new contract high at $4.76 1/2.

Ethanol margins have significantly improved from a few months ago, when some plants were seeing red. Board crush margins are showing roughly a $1.34-per-bushel margin as the price of ethanol on the Chicago Board of Trade is up 65 cents per gallon since last September.

Two reports this week should be positive influences on feed demand. Hog inventories as of Dec. 1 were 65.11 million head, higher than pre-report estimates, and reaching their highest level since 1979. The broiler report indicated egg sets up 4 percent and placements up 3 percent.

Exports were better than expected, at 56.1 million bushels. This brings total commitments to 1.542 billion bushels when only 2.450 billion are forecasted by the USDA. We have sold 63 percent of the total export projection with eight months of the marketing year to go. Also this week, 2.4 million bushels of new crop corn sales were made.

OUTLOOK: Demand continues to flourish. Corn is up more than 16 percent since the end of 2006. This is allowing corn to begin to trade on its own merits and not be a follower. I will shift my range for March corn higher on the bottom end to $4.15 and leave the upside at $4.75 for now. Dare we whisper the possibility of a return to $5? Is a correction still in the cards? Technically, I would venture yes, we should see some sort of correction soon. However, unless there is a major change in today’s market, the correction should be limited. The final USDA crop production report and Grain Stocks as of the Dec. 1 report will be released Jan. 11.

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