Phyllis Nystrom

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

CORN — Corn snapped a seven-session losing string in the last half of the week as buyers tried to bottom pick the market on oversold conditions. That optimism quickly disintegrated as corn reversed lower going into the weekend as traders exited positions.

President Obama’s announcement this week of his intention to prohibit banks’ proprietary trading and from owning or making investments in private equity and hedge funds that are “unrelated to serving customers” made traders nervous. Commodity and stock markets suffered on the uncertainty of what this will mean to markets.

A strengthening U.S. dollar had been lending pressure to commodities throughout the week as China made moves to tighten credit. They increased their reserve requirements for banks by 0.5 percent and told some commercial banks to curb lending.

With tighter credit, the perception is that economic growth will slow, and result in slower demand for commodities in general. While the dollar didn’t fade, corn was “due” for a bounce in an otherwise bearish fundamental picture.

Corn plummeted nearly 63 cents from the $4.25 high on Jan. 11 to the low on Jan. 20 at $3.62 1/4, which attracted end-user pricing and tremendous weekly export sales.

The U.S. economic outlook took a small hit this week with initial jobless claims up slightly more than expected at 482,000.

Corn set new post-harvest lows this week as the March contract traded as low as $3.62 1/4 and the December contract hit $3.96 1/2.

Informa Economic updated their 2010-11 planted acreage numbers this week. They are forecasting corn acres at 89.647 million acres. Their last estimate was 89.5 million acres and last year we actually planted 86.5 million acres. For soybeans, in December they were projecting 77.0 million acres, down 500,000 from this year’s 77.5 million planted acres. After the decrease in wheat acres that was estimated by the U.S. Department of Agriculture on the Jan. 12 report, Informa is now expecting 77.919 million acres of soybeans to be planted this spring.

The International Grains Council released new world production and carryout numbers this week. They now expect world corn ending stocks to be 3 million metric tons higher than their last estimate. Argentina’s corn production was raised to 18.0 mmt by the Buenos Aires Grain Exchange. The January USDA estimate was 15.0 mmt.

Exports hit another marketing year high this week after the big purchases last week by Japan and South Korea hit the report. Sales were a staggering 63.4 million bushels, but they were not enough to combat the market’s uneasiness from other sectors.

Corn quality or the lack thereof continues to circulate around the grain trade. Pictures of piles of corn turning black, corn waiting to be harvested and toxin levels are all concerns. Remember to monitor those bins for problems so you don’t get caught with an unmanageable problem.

OUTLOOK: Negative fundamentals haven’t changed, but even a bear market has its bounces. However, ethanol and livestock producers in the black and U.S. corn close to penciling into China (remote chance it would happen); give some confidence that we’ve traded low enough for now.

March corn was 6 3/4 cents lower for the week and closed at $4.64 3/4; the December contract was down 8 3/4 cents at $3.97 1/4. While our new short-term range for March corn may be $3.50 to $3.80, next support is seen at $3.45, then $3.15 1/2 (March contract low). First resistance is the 100-day moving average at $3.82 1/2, then the gap at $3.92 1/2.

SOYBEANS — A lot of damage can be done in a holiday-shortened trading week as soybeans hit prices not seen in three months.

Beans suffered the spillover effects from a rising U.S. dollar, weaker crude oil prices, fund selling and general apprehension of traders about what the government is up to. These items were covered in the corn comments and hold true for the bean market as well.

Funds are estimated to be long less than 6,000 soybean contracts after the close on Thursday. Funds have not had a sizable short in the bean market since early last March.

On top of those factors are the on-going favorable growing conditions in South America. Harvest in Brazil is estimated to be 3 to 4 percent complete and usually doesn’t hit 10 percent complete until late March.

Basis levels were flat to better as farmer selling lagged. For the week, March soybeans lost 22 1/2 cents to settle at $9.51 1/2. The November contract was only down 9 cents at $9.33 1/4.

Export sales were respectable this week at 34.2 million bushels. China hasn’t totally evaporated from the U.S. export market as they accounted for three quarters of this week’s sales. There were also 19.6 million bushels sold for the 2010-11 marketing year.

See the corn comments for Informa Economics’ refreshed acreage forecasts for this year.

OUTLOOK: I guess we weren’t bearish enough last week as the March contract traded as low as $9.40 3/4 this week. For March beans, the next support level beyond that is $9.25/$9. Any bounces would hit resistance at $9.85/$10 per bushel.

Fundamentally, we’ll be watching Chinese buying activity and South American crop development; but the U.S. dollar and outside market direction, i.e. crude oil, will have an equal pull on where we head from here.

Seasonally beans show an increase when we flip the calendar to February. Whether seasonality will hold this year may depend on where prices are at the beginning of February.

Nystrom’s notes: Nearby contract changes for the week as of mid-afternoon Jan. 22: Minneapolis wheat down 8 cents, Chicago wheat down 11 1/2 cents and Kansas City down a dime. Crude oil was down $3.83 at $74.54, heating oil down nearly 10 1/2 cents, gasoline down 8 1/2 cents, natural gas up almost 8 cents, Dow down 337 points, gold down $39.70 and the U.S. dollar index up 0.96 points.


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