Phyllis Nystrom

The following market analysis is for the week ending Oct. 10.

CORN — The financial scene pushed corn prices into lows not seen since October 2007 as the meltdown continues. Yes, we’ve totally retraced the 2008 rally.

At mid-week, the U.S. Federal Reserve cut the interest rate 0.5 percent to 1.5 percent. This was a coordinated effort by several banks around the world to help ease the credit crunch. Australia took the lead by cutting their interest 1 percent. The U.S. dollar index rallied to 12-month highs.

The rate decrease did instill a modicum of pre-report confidence back into the grain markets, which were able to stage a technical key reversal higher on Wednesday. By Friday morning, prices were plunging again as the credit markets were still seized up. Until the outside markets stabilize, we should expect high volatility markets that can turn abruptly and without warning.

The monthly U.S. Department of Agriculture report was released on Oct. 10. The 2008 yield was estimated at 154.0 bushels per acre, up 1.7 bu./acre from the September report and above the guesses. Production is forecasted at 12.2 billion bushels, an increase of 128 million from last month.

The feed line was increased 150 million bushels, the FSI category was lowered 110 million (of which ethanol accounted for 100 million). Ethanol use is at 4.0 billion bushels versus 3.0 billion last year. Ending stocks for 2008-09 are now projected at 1.154 billion bushels versus 1.018 billion in September, and the average estimate of 1.132 billion bushels.

The Brazilian real has fallen to the level where U.S. corn is now trading at roughly a $20 premium to Brazilian corn. Just a few weeks ago U.S. corn was at a $5 premium. However, U.S. corn exports were better than anticipated at 37.7 million bushels. This wasn’t enough to keep us from falling further behind last year’s pace. We currently have 39 percent less bushels on the books than last year at this time.

Weekly egg sets this week were reported at an extremely low 89 percent of last year. Chick placements were down 3 percent. This will put a damper on both corn and meal feeding.

OUTLOOK: After this week’s wild ride, heavily attributed to financial considerations, December closed down limit on Friday and down 45 3⁄4 cents on the week. Open interest in corn has dropped from 1.43 million contracts in June to 1.0 million this week.

Trying to say where a bottom may be is like trying to find a needle in a haystack, and just as futile. Support in the December contract is $3.95, then $3.75. Resistance is seen as $4.50, then $4.75. But until the global credit crisis shows signs of improvements, price range guesses are just that — guesses.

SOYBEANS — At mid-week, November beans staged a key reversal higher after posting a low of $9.11. This change in technicals caused some traders to put their buying shoes back on. Fundamentally, demand has picked up in beans, with China back in the market over the last two weeks.

Farmer selling has been virtually non-existent with falling prices and growers comfortable with early sales, which may be at a higher percentage than expected due to slightly disappointing early yields. In the end, though, it’s the outside influences that are directing prices. Fundamentals, while not being thrown out the window, certainly have a leg through it.

The October USDA supply and demand report predicted the 2008 yield at 39.5 bu./acre, down just 0.5 bu./acre from the September report. The biggest surprise of the report was the “finding” of an additional 2.2 million planted acres, bringing them to 77.0 million versus 64.7 million last year.

Most of the additional acres were discovered in North Dakota (530,000), Iowa (500,000), Nebraska (250,000), Illinois (200,000), Minnesota (150,000) and Kansas (100,000). Production was only increased 49 million to 2.983 billion bushels. Total supply increased 110 million, including the additional 65 million bushels from the September Grain Stocks report.

Other categorical changes were imports down 3 million, crush lowered 25 million, exports increased 50 million, and residual up 1 million. Ending stocks were projected at 220 million bushels versus on the September report at 135 million and the pre-report forecast of 187 million bushels.

Nothing looked friendly on the report, and when combined with crumbling financial, beans locked limit down to finish the week. For the week, November beans were down 82 cents and trading at levels not seen since September 2007.

Export sales were about as expected at 22.1 million bushels, bringing total export commitments to 405.8 million bushels and 4 percent more than last year. The Argentine farmer strike is over and was essentially a non-event to the export markets. CONAB estimated Brazil’s bean production this year at 60.1 to 61.2 million metric tons versus last year’s 60.0 mmt production.

After trading at-limit for three consecutive days (this time three limit-down days), the Dalian Commodity Exchange in China forced speculative shorts to liquidate profitable positions in beans, palm oil, bean oil and soymeal. Also, commercial short hedgers with a profit equal to 7 percent or more were being forced to close positions. Chinese markets were on holiday the previous week and seemingly were playing catch-up to U.S. markets.

OUTLOOK: A plethora of factors are affecting the markets. Although it may be an exercise in futility, first support in the November contract is at $8.80, then $8.30. While we wait for outside markets to stabilize, this month’s higher stocks number does take the pressure off tight stocks down the road.

Nystrom’s notes: Crude oil closed down $16.18 for the week at $77.70, trading to levels not seen since October 2007. Heating oil was down 44.75 cents and gasoline fell for 42.13 cents on the week.

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