The following market analysis is for the week ending Jan. 5.
SOYBEANS — Markets started off 2007 with a short week, due to the New Year’s holiday and the national day of mourning for President Ford, and a weak futures market.
Anticipation of fund buying when the calendar flipped rallied prices at the end of 2006, but when the buying did not show up, futures reversed to previous support in the low $6.70s. Beans are looking to the corn market for direction and should continue to do so until we get new U.S. Department of Agriculture numbers next week.
South American weather remains nearly ideal for crop development. Bean planting in Brazil was last estimated in the middle of December at 94 percent complete with total acreage expected to be about 7 percent less than last year. Brazilian production however, is estimated at 56 million metric tons by the USDA, up 1 mmt from last year. Argentina’s beans are essentially all in the ground. The last USDA production estimate was 42 mmt versus 40.5 mmt last year.
Informa Economics released their 2006-07 U.S. soybean production estimate at 3.26 billion bushels, 59 million bushels greater than the USDA December number. Informa used a yield of 43.8 bushels per acre as compared to the last USDA figure of 43 bu./acre. The USDA will release final numbers on Jan. 12 along with grain stocks as of Dec. 1.
Export sales for the week were less than expected, even with a short trading week, at 12.5 million bushels. Total commitments stand at 732 million bushels and are still 33 percent greater than last year at this time.
OUTLOOK: March beans gave back the gains seen in the week preceding Christmas and slipped to the lower end of the trading range that they’ve been in since the end of November.
If the $6.73 level can hold on a closing basis, we could expect a swing back into the middle to upper end of the trading range from $6.83 to $6.98. If not, the next support will come in at $6.57 1/2 to $6.50.
CORN — March corn traded to its lowest level since mid-November on profit taking and the obvious absence of index fund buying.
Weakness across all commodities took some by surprise as even the crude oil market plummeted back to $55 to trade at its lowest price since mid-November. Cash markets seem to be well satisfied with year end selling and are not aggressively searching for supplies.
As I have mentioned previously, this market was due for a break; however, I don’t believe it is broken. A market will usually go farther than expected and this looked like the case this week. The top of a gap in the March contract left from early November is at $3.54 and should provide support. The gap from $3.82 1/4 to $3.87 1/2 will serve as first resistance levels.
Congress has started off the new year with the introduction of a new bill called the BioFuels Security Act. It calls for the oil industry to blend 60 billion gallons of ethanol and biodiesel by 2030. Presently the call is for 7.5 billion gallons by 2012.
Reportedly, we could see a new report that will be similar to the soybean Census crush report, but instead will report the amount of corn ground for ethanol and the amount of DDGs produced by ethanol plants.
Informa Economics issued their 2006-07 final crop estimate at 10.71 billion bushels, 36 million less than the USDA December estimate. Their yield was 150.7 bu./acre versus the last USDA prediction of 151.2 bu./acre.
Export sales in the shortened holiday week were still disappointing at only 22.6 million bushels. Total export commitments at 1.2 billion bushels are still 38 percent ahead of last year.
OUTLOOK: In my last column, I cautioned about what could occur if fund buying didn’t show up right away after the first of the year. While correct, the magnitude of the retracement was surprising. The slide may not yet be at an end, but end-user buying did show up this week.
I would expect we could see a bounce into the January reports with fund trading and USDA numbers dictating direction for the balance of January. At this time I have a hard time accepting that funds won’t be back in as buyers some time this or next month.
The Commitment of Traders report is not yet available as I go to press, but the Jan. 5 report will be the first time that a Supplemental Report will be included that breaks out fund positions. We’ll look at that next week to see the results.
The final USDA 2006 crop year production report and Dec. 1 Grain Stocks report will be released on Jan. 12.
Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.