Phyllis Nystrom

The following market analysis is for the week ending July 24.

CORN — We came close to our support number of $3 that was mentioned last week before outside market strength and a U.S. Department of Agriculture announcement pulled prices back from the brink. September corn set a new contract low at $3.04 and December 2009 corn hit its lowest level since October 2006.

The USDA is going to ask growers in Illinois, Indiana, Ohio, North Dakota, Kentucky, Missouri and Pennsylvania to restate their planted corn acres. Illinois and Missouri will also be asked to resurvey their sorghum acres.

The new numbers will be used for the Aug. 12 USDA crop report which will also include the first yield estimate of the year based on actual field samples. The request for new information is due to delayed planting caused by wet conditions that may have caused a switch in acres after the June 1 reporting date.

If 5 percent of those seven states’ corn acres were “lost” from corn it would amount to a 1.5 million acre reduction. Assuming the USDA’s demand and usage numbers remain constant from the July report, a 1.5 million acreage reduction results in a 233 million bushel production loss using the current 153.4 bushels per acre yield estimate.

However, most have already figured in an average U.S. corn yield average of 157 bu./acre. Using the projected increase in yield of 3.6 bu./acre and a 1.5 million acre loss, production would actually increase from the July estimate of 12.29 billion bushels to 12.34 billion bushels. For perspective, there’s no precedent by the government for a reduction greater than 800,000 acres.

In another surprising USDA announcement, they will no longer conduct actual field surveys to determine spring wheat and durum yield estimates for their Objective Yield Survey program. They will rely solely on farmer surveys for this information.

Darrel Good, from my alma mater the University of Illinois, used current condition ratings this week to update his crop forecast. Using a yield of 161.9 bu./acre he is currently projecting a crop of 12.968 billion bushels with carryout of 2.228 billion bushels.

The USDA July numbers were 153.4 bu./acre, production of 12.29 billion bushels, and ending stocks of 1.550 billion bushels.

Thanks to improving livestock margins, better ethanol margins and good export demand, basis levels were mostly steady. Exports were 30 million bushels this week, bringing total export commitments to 1.8 billion bushels for the 2008-09 marketing year.

China was only able to sell 37 percent of the 2 million metric tons of corn they auctioned from state reserves this past week. They are scheduled to offer another 2 mmt July 28. The Dow also lent support this week as it pushed through the 9,000 level for the first time since January. The U.S. dollar index fell three-quarters of a point on the week.

OUTLOOK: Are we headed back to fill the gap on the charts from $3.53 1/4 to $3.56 3/4? If so, outside factors will need to gain upside traction and/or weather will need to turn sour. Weather for at least the next week looks good for pollination and it’s too early to be convinced we’ll have a frost problem.

December’s contract low of $3.02 is the next support. Rallies may spell an opportunity to made additional sales if needed. Seasonally, corn declines the last half of July, then recovers in the first half of August. September corn this week was down 6 cents and the December contract was down 4 1/4 cents.

SOYBEANS — While the resurveying announcement by the USDA was perceived as bullish corn, it should have been bearish for soybeans if indeed at least a portion of those acres were switched to soybeans.

However, beans rallied right along with the corn on oversold conditions, a weak U.S. dollar and stronger stock and energy markets. Demand for new crop beans continues to steam ahead with China buying at least another two cargoes of new crop beans from the United States.

Weekly export numbers continue to support concerns about old crop tightness. This week’s sales were nearly 12 million bushels, adding promise to exports increasing on future balance sheets. Total 2008-09 export commitments are 1.278 billion bushels versus the latest USDA projection of 1.26 billion bushels.

Good also updated his soybean balance sheet. Based on current conditions, the U.S. bean yield will average 44.7 bu./acre or 2.1 bu./acre higher than the July USDA estimate. His 3.42 billion bushel crop and ending stocks of 410 million bushels compares to the USDA figures of 3.26 billion production and 250 million bushel carryout.

China offered 500,000 mt of state reserve soybeans at auction this week with no takers. Could it be because the minimum bid was around $1 per bushel over import replacement? This does open the door for the possibility of the government subsidizing the sale to inland processors who are experiencing the poorest margins. A total of 1.5 mmt of beans were to be offered in three equal increments with this week being round one and another 500,000 mt being auctioned this coming week.

OUTLOOK: The five-year seasonal chart for November indicates a weakening throughout August. I would peg support in the November contract at $9 to $8.80 and resistance at $9.50 in the short run.

It’s too early to have any confidence in changing yield estimates from the current 42.6 bu./acre. August beans were up 11 1/2 cents this week while November beans were 8 1/2 cents lower.

Nystrom’s notes: Crude oil was up $3.47 at $68.05 this week. Heating oil was up 14 cents, gasoline up 14 1/2 cents and natural gas was down a penny this week. September Minneapolis wheat lost 24 3/4 cents, the U.S. dollar was down 0.75 and the Dow was up 323 points for the week at midday Friday.


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

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