The following market analysis is for the week ending April 11.
SOYBEANS — This week the U.S. Department of Agriculture released the April supply-demand report which showed an import increase of 4 million bushels, an increase in crush of 5 million bushels, exports 50 million bushels higher and seed usage up 6 million bushels.
The residual line was cut by 77 million bushels (last year’s crop understated?), down to a minimal 2 million bushels. The overall result was an increase of 20 million bushels in ending stocks for 2007-08 to 160 million bushels. The stocks-to-use ratio rose to 5.3 percent, up 0.7 percent from the last report.
The national farm price range was left unchanged at $10 to $10.50. May beans for the week were up 55 1/2 cents and November beans were up 38 3/4 cents. Crude oil reached a record high of $112.21 per barrel last week also.
The farmer strike in Argentina was suspended last week until May 1 to encourage negotiations with the government. Farmers want the government to reduce or eliminate the increase in export taxes. The government imposed a variable tax of 44 percent on bean exports, up from a previous fixed rate of 35 percent.
Thus far, the government is showing no signs of backing down from the increases, but may offer concessions in other areas. There is concern that the strike suspension may not last the full 30 days if growers become disenchanted with progress toward a settlement. Initial talks with President Fernandez reportedly went well late in the week, but the damage has probably been done concerning their lost business that came to the United States. Argentina is the world’s third largest soybean exporter behind the United States and Brazil.
Exports were 21.5 million bushels this week. Total commitments for this year are up to 1.017 billion bushels, 95 percent of the new USDA export forecast of 1.075 billion bushels. This feeds the distinct possibility that exports will exceed the prediction and lead to a smaller carryout number on subsequent balance sheets.
A sale of 240,000 metric tons of U.S. beans to China was announced late in the week. China has imported 36 percent more beans overall in the first quarter of this year versus last year. The falling U.S. dollar is also helping with the U.S. export pace. Basis levels around the country continue to appreciate on the demand.
OUTLOOK: Beans were back in the lead this week on ideas the carryout will shrink back down to the 100 million to 140 million bushel area.
Shipping delays in South America which is pushing new business to the United States could push prices back into the $13 area for November and into the $14 level for May. If exports begin to subside, this week’s low, and an area of consolidation, at $12.45 will be the first line of support. Seasonally, beans usually see a flat to rising market from April to June. However, weather forecasts and how fast the crop gets in the ground should prevail in price direction.
CORN — Right on the heels of the bullish planting intentions report, a bullish monthly supply-demand balance sheet sent corn to new all-time highs.
Ending stocks for the 2007-08 marketing year came out at 1.283 billion bushels, a 155 million bushel reduction from the March report and less than the trade estimated. Feed usage was upped 200 million bushels; food, seed and industrial was dropped 95 million; ethanol fell 100 million and exports were raised 50 million bushels.
Ethanol usage may still end up being too high since to achieve the 3.1 billion bushel estimate we will need to use 52 percent more corn for ethanol each month through August than we did last year for the same period. So far this year, we’ve used 36 percent more corn for ethanol than last year.
The stocks-to-use ratio fell 1.3 percent to only 9.8 percent, the lowest ratio since 2003-04. The average farm price range for the marketing year jumped from $3.75 to $4.25 to $4.10 to $4.50.
After the push higher off the report, corn consolidated on weather reports, with May corn down 13 3/4 cents on the week and December corn down 4 3/4 cents.
While these numbers support the rising market, another major feature is the continued wet pattern over the Midwest. While the U.S. farmer can put the crop in the ground amazingly quick, he first must be able to get started. The USDA is expected to issue their first corn planting progress report April 14. On average U.S. corn planting is 50 percent complete by May 1.
The broiler-egg sets were lower for the second week in a row at only 99 percent of last year. Chick placements were 102 percent of last year.
Exports this week were a low for this marketing year at 18.7 million bushels, which brings total commitments to 2.126 billion bushels or 85 percent of the updated USDA projection. A contributing factor for this could be the fact that China has only exported about 80,000 metric tons of corn in the first quarter of this calendar year versus 2.9 million metric tons last year.
OUTLOOK: Weather forecasts now demand our attention and will be a major influence on how high this uptrend will extend. The $7 level for new crop will be eyed by the industry as a target to see if demand will be curbed, particularly in the ethanol sector.
In the shorter term, $6.50 is next upside objective while support in the December lies at $5.78 and in the May at $5.57. The concern of available supplies lies not only in this year, but also for next year. Seasonally, we usually see prices slide lower from May through the summer without weather influences. Currently, wet weather and low soil temperatures are supporting prices.
Nystrom notes: Crude oil hit a record $112.21 per barrel, providing support across all commodities. The U.S. dollar resumed its slide against a basket of foreign currencies. The Texas wheat production was estimated at 118.9 million bushels by the National Agricultural Statistics Service this week, when the trade was anticipating 75 million to 100 million bushels. Wheat carryout was forecast by the USDA at 242 million bushels, unchanged from the last report. 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.