Grain Outlook: Fewer acres switched to beans

The following market analysis is for the week ending May 16.

SOYBEANS — Soybeans were gainers this week on ideas that fewer acres may be switched to beans, the Argentine farmer situation remains unsettled and crude oil hit record highs.

Another issue coming on the radar screen may be in the double crop bean arena due to delayed maturity of soft red winter wheat, resulting in delayed planting of beans. July beans were up 20 cents for the week and the November contract was up 45 1/2 cents.

Eleven percent of U.S. bean acres had been planted as of May 11 versus 29 percent on average. Bean planting is anticipated to reach 25 to 30 percent complete by May 18 versus the average of 47 percent.

Informa Economics updated their acreage estimate this week. They expect 73.3 million soybean acres to be planted versus their earlier 74.8 million number and the U.S. Department of Agriculture’s 74.8 million acres. Informa is using a 43.1 bushels per acre yield on their balance sheets and predicting a 204 million bushel carryout for the 2008-09 marketing year. The USDA is at 185 million bushels.

Export sales were on the low side of expectations, coming in at 7.4 million bushels, but still at 98 percent of the total export forecast. No new crop sales were reported this week. The longer the Argentine farmers stay on strike, the more business the United States may expect as a result. Only about 1 percent of the normal truck volume reached export terminals this week in Argentina. China continued to make old crop bean purchases this week with values off the west coast competitive with South America. They also were buyers of new crop from the United States that will be included in next week’s numbers.

Argentina’s president made her first overture to the farmers that the government may be willing to talk about the new export taxes. The growers have extended their strike until May 22.

OUTLOOK: If energy prices continue to scream higher and the U.S. dollar remains under pressure, it will be hard for commodity prices in general to decline significantly in the near term. Weather will trump outside influences at times, but we need to monitor the entire package for direction. Balance sheets for corn and beans can’t tolerate yield adversity. We’ll look for a July bean range of $13 to $14.25 and a November range of $12.85 to $14. If the Argentine situation settles, it may push us to test support.

CORN — Corn retraced gains this week as the weather cleared and planters were once again rolling across the Midwest. Although it was still “stop and go” progress in many areas, the corn is finding its way out of the sack and into the ground.

Planting progress as of May 11 was 51 percent complete versus the 77 percent average. At this writing, planting is expected to have increased to 75 percent complete by May 17. The average complete by this date is 89 percent. The next concern is emergence. The corn may be planted, but due to the cool temps it’s still behind in development with only 11 percent emerged as of May 11. How this will affect yield potential is still uncertain. For the week, July corn was down 38 1/4 cents and the December contract lost 33 1/4 cents.

The Food, Conservation and Energy Act of 2008 — or just “the farm bill” —is set to be presented to the White House, mostly likely by May 20. President Bush has said he will veto the bill, but Congress believes they have enough votes to override it. The current farm bill expires May 23. Over 73 percent of the $289 billion bill is ear-marked for nutrition programs. The target price for corn remains unchanged in the bill, while the soybean target in 2010-12 rises from $5.80 to $6.

Other highlights of the bill: Average Crop Revenue Election in which a grower may elect (if elected it is in effect for the entire bill) to take a 20 percent decrease in direct payments and a 20 percent reduction in loan rates in exchange for a guarantee on planted acres equal to 90 percent of the five-year state average yield factor times the national season average price for the previous two years. The state average yield factor excludes the high and low yield years. Direct payments are unchanged, except that the percentage of base aces drops to 83.3 percent 2009-11, and then reverts to 85 percent for 2012.

Informa Economics is pegging 2008-09 planted corn acres at 87.2 million versus their last estimate of 87.5 million and the USDA’s 86.0 million acres. Using their 158.4 bushels per acre yield, Informa shows a 2008-09 carryout of 1.081 billion bushels versus the USDA’s 763 million bushels forecast.

Export sales were neutral at 21.6 million bushels, bringing sales to 90 percent of the USDA projection. New crop sales were 5.5 million bushels. Sale commitments for the 2008-09 crop year are up 19 percent from last year, on track since the USDA is calling for exports to be 18 percent higher next year. Broiler egg sets were reported at 97 percent of last year’s levels and chick placements were 98 percent. Broiler feeding margins are reportedly the lowest in modern history on high feed prices.

OUTLOOK: The price outlook for July corn is $5.85 to $6.50 and for December $5.80 to $6.50. Weather will be the greatest influence and emergence will grow in importance.

Nystrom Notes: The June crude oil contract set an all-time high of $127.82 and gasoline jumped to a record $3.2438 on the Nymex. Goldman Sachs released their new estimate that crude oil prices would average $141/barrel for the last half of 2008 and $148/barrel in 2009. The U.S. retail average price for gasoline soared to a new high of $3.79. The next USDA reports of major importance are the June 30 Acreage and Grain Stocks reports.

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