The following market analysis is for the week ending Dec. 22.
SOYBEANS — Soybeans spent the week regaining the losses of the previous week and following corn. I would expect this trend to continue with beans looking to corn for strength, but gains will be limited by favorable growing conditions in South America.
Export sales this week were reported at 27.3 million bushels. Total export commitments are 36 percent ahead of a year ago and now total 682 million bushels. The U.S. Department of Agriculture export forecast is 1.145 billion bushels. We need 13.5 million bushels per week to attain that level. Since South American supplies become available in the next few months, we need to front end load our export numbers.
Speaking of South America, their conditions (and I hesitate to use the word) are nearly ideal. Recent rains have alleviated nearby concerns of dryness in southern Brazil and Argentina looks good.
The U.S. Census Bureau Crush report this week was close to trade expectations at 155 million bushels and versus last year at 151.5 million bushels. The crush so far this year is estimated at 459.1 million bushels versus 442.4 million last year. While this number is 3.8 percent ahead of last year, the USDA is only looking for an increase in the crush of 2.3 percent. Oil stocks were slightly higher than pre-report talk at 3.096 billion pounds. This pegs the yield at 11.14 pounds per bushel, lower than the 11.3 pounds per bushel USDA projection for the year.
OUTLOOK: In seven of the last 10 years, the Dec. 1 bean stocks were less than trade estimates. Seasonals show a tendency for March beans to be higher in early January and lower in the last half of January. March beans, short term, have resistance at $6.75, then $7. Support will come in at $6.60, then $6.40.
CORN — After trading in a sideways pattern for a couple of weeks, corn has again broken out to the upside. The December 2007 and 2008 contracts set new contract highs going into the Christmas holiday. Excellent export sales, index buying interest and the absence of China in the export arena were all contributing factors to the recovery.
Export sales for the week ended Dec. 14 were 49.8 million bushels. We only need 31.5 million per week to achieve the USDA projection of 2.2 billion bushels. Total commitments for this year are 1.13 billion bushels so far, which is 35 percent ahead of last year. Rationing? What rationing?
According to reports, South Korea is not worried about their purchases from China being filled. China has been delaying shipments as some regions of their country are seeing record high prices for domestic corn.
The Chinese government has stated they will closely watch the corn situation from a food-versus-fuel standpoint. They announced they would oversee any new ethanol plant construction.
Talk that China will become a net importer of corn will probably increase if the delays in export shipments continue. Also on the radar screen is chatter that India may waive import tariffs on corn, which would open the door for additional U.S. demand.
OUTLOOK: The next USDA report, on Jan. 12, will be the final crop production report for the 2006-07 crop. The grain stocks report will be released the same day. Seasonally, corn is higher in the last half of December and for most of January. I would expect history to repeat itself again this year and maintain a friendly stance into the first part of the year.
For those looking at new crop corn, December 2007 corn’s next target is $3.77, then many will eye the $4 level.
The commitment of traders report in January will begin to break out index positions on the weekly report. This should add transparency to the market concerning what group is doing what.
What the index community will do after the calendar turns to 2007 is open to question. Will the new money that is expected to be available offset the anticipated re-balancing event, which could include selling grains and buying energies? Based on history, I would expect fund buying to reappear.
Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.