Phyllis Nystrom

The following market analysis is for the week ending May 22.

CORN — Weather remains a fundamental driver of the corn market, but recent forecasts have turned drier which should allow for quick planting progress this week.

A University of Illinois study reported that Illinois corn yield could range from 134.5 bushels per acre (dry and hot) to 172.6 bu./acre (cool and wet), assuming that 75 percent of the crop is planted after May 20 but before June 1. Their current yield projection if 75 percent of the corn is planted after May 20 under normal conditions is 157.4 bu./acre. On May 17, Illinois was 20 percent planted.

The soybean market strength may limit the downside in corn, but accelerated planting may limit the upside. The latest 30- and 90-day forecasts released May 22 from the National Oceanic and Atmospheric Administration predicted normal rainfall and temps for most of the Midwest.

Breaking from history Informa Economics, on Friday after the market closed, updated their corn production estimate for this year. To account for the delayed planting in the eastern Corn Belt and the great start in a few western Corn Belt states, Informa lowered their yield projection by 3 bu./acre.

Their yield estimate is now at 156.4 bu./acre, down from their previous 159.4 bu./acre forecast. Their production estimate fell 224 million bushels to 12.003 billion bushels with ending stocks at 1.069 billion bushels.

While not as apparent in corn as in beans, funds were buyers this week of 10,000 contracts early in the week before selling/profit-taking ensued before the long holiday weekend.

Decent export business was reported throughout the week and basis was steady to firm. A falling U.S. dollar has steered attention back to owning commodities. Weather may be in the process of taking a backseat to money re-entering the market. The weak U.S. dollar encouraged dollars to head to commodities.

New fuel standards to go into effect by 2012 were announced this week. When the Environmental Protection Agency administrator was asked how the stricter standards would affect flex-fuel/E85 vehicles, he “didn’t have an answer to that.”

Weekly corn export sales were less than expected at 27 million bushels. Total sales commitments are running 31 percent behind last year when exports are projected to be down 28 percent. We only need 18.7 million bushels per week to meet the latest forecast.

New crop sales were 5.4 million bushels, bringing total new crop sales to nearly 47 million bushels, well under the 110 million bushels we had on the books last year at this time.

OUTLOOK: July corn’s resistance stands at $4.50 and support near $4. The July contract was up 13 cents this week to close at $4.30 1/4.

For the December contract first resistance remains at $4.75 and support near $4. The December was up 13 1/2 cents this week and closed at $4.52. Continue to monitor the weather, planting progress and the direction of the U.S. dollar. The dollar plummeted nearly 3 full points this week to 80 and the Dow was up 79 points to settle the week at 8,343.

SOYBEANS — Weekly export sales were huge at 25.7 million bushels, proving that we have not yet rationed old-crop supplies.

We only need to average 2.7 million bushels per week to reach the U.S. Department of Agriculture projection. New crop sales were equally impressive at 24.5 million bushels, and now total 130 million bushels, well above last year’s 74 million bushels.

Demand for U.S. meal remains strong with weekly sales at 210,000 metric tons. A sale of 100,000 mt of U.S. meal was sold to an unknown destination this week.

Delayed planting in the Delta also contributes to the ending stocks dilemma in that early supplies will be reduced.

China was quiet this week, but they remain key to what will happen in the old crop bean market. If they roll their positions to new crop, switch cargoes to South America, or cancel purchases, it will loosen old crop supplies and release pressure on the old crop-new crop inverse.

If they continue to purchase, the inverse and prices should continue to gain. Ending stock estimates in the sub-100 million area are beginning to pop up and contributed to the jump to new highs for the move in old crop.

The Buenos Aires Grain Exchanged lowered their Argentine soybean production estimate to 32.2 million mt this week from 32.8 mmt predicted just last week.

Fund buyers turned their attention to the bean market this week, particularly to the new crop, pushing prices higher. July beans were up 35 1/2 cents this week, closing at $11.66. November soybeans closed the week at $10.31 1/2, up 55 3/4 cents.

OUTLOOK: Market reaction to some private estimates for 2008-09 ending stocks to be as low as less than 100 million bushels (USDA is at 130 million), we could be close to pricing in this supportive leg of the market. The next upside target is near $12, maybe $13?, with support at $11 for the July contract.

First resistance in the November contract is viewed as $10.50 and supports at $9.50. At the time of this posting, Informa had not released any updated soybean figures.

Nystrom’s notes: This week’s inventory report was bullish gasoline with stocks seeing a big draw as we head into driving season. The build in heating oil was not as large as anticipated and the draw in crude oil was larger than expected.

For the week, July crude oil hit eight-month highs settling up $4.67 at $61.67, June heating oil up almost 12 cents and gasoline up 16 cents and natural gas up over 58 cents. Refinery glitches and a weak U.S. dollar also lent support.


•••



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