Phyllis Nystrom

The following market analysis is for the week ending Sept. 5.

CORN — Corn prices extended their downtrend after gapping lower to start the holiday-shortened week, waving goodbye to fund length as it went.

Fresh market-moving news other than weather was minimal, permitting outside markets to exert significant influence on price direction. The U.S. dollar stormed higher to levels not seen since October 2007 on outlooks for both the U.S. and European economies that seemed dim. The U.S. jobless claims grew 15,000 for the most-current week, adding fuel to economic fears. The U.S. unemployment rate rose to a five-year high at 6.1 percent when 5.7 percent had been anticipated.

A leading fund was closed this week after losing 27 percent in August and 39 percent for the year, reportedly because of losses associated with natural gas-related investments; but overall fund money exiting commodity markets cast a pall over any bullish sentiment.

Ocean freight rates are rolling lower, which may imply a slowdown as well. December corn lost 36 1/2 cents for the first week of September.

Weather limited upside ideas when rain from Hurricane Gustav moved into the Corn Belt. The talk of declining yields since the last U.S. Department of Agriculture report may not be confirmed until we see wheels roll in the field, another few weeks off.

Conditions as of Aug. 31 fell 3 percent as we work our way toward maturity. Even as temperatures herald the beginning of fall, crop-threatening frost has not come into the forecast. Basis levels were mostly steady to firm as supply and demand remained relatively in balance.

Informa Economics updated their crop estimates during the trading session as we ended the week. They are forecasting the U.S. corn yield at 156.5 bushels per acre, up 1.1 bu./acre from their August forecast and above the USDA’s 155 bu./acre August number.

Their crop estimate now comes in at 12.406 billion bushels, up 76 million bushels from their August estimate and 118 million bushels over the USDA.

A new political wrinkle this week is talk that Argentina may limit corn exports. This should not have a significant impact on overall trade at this juncture with ample supplies from other sources.

Even though it may not become a major plank, the Republicans called for ending the ethanol mandate at their national convention here in St. Paul, but will continue to push for cellulose development.

Malaysian traders are looking for poultry demand to slip 10 percent to 15 percent over the next year with the Philippines predicting a 20 percent decrease in feed production. The U.S. broiler egg set number this week was only 95 percent of last year and chick placements at 96 percent of last year.

In the last full reporting week of the 2007-08 crop year, corn exports were neutral at just under 8 million bushels for old crop and 15.3 million bushels for new crop.

OUTLOOK: Corn dove beneath its 200-day moving average and seasonally prices turn lower into harvest. The August low at $5.04 1/2 is still support, with resistance at $5.66, then $5.82. Until buyers have confidence again, look for weaker prices ahead.

SOYBEANS — While dryness has been a concern as the bean growing season closes, prices moved sharply lower when rain hit the ground around the Corn Belt over the last two weeks.

Basis levels continued to scream higher this week, especially in the Upper Midwest. Whether as a result of disinterested farmers, tight holding by commercials, a lack of supplies overall, or a combination of them all, movement has been slow and thin.

The weather outlook holds the promise that yields will hold close to the August estimates. Bean conditions were seasonally lower, down 4 percent from the previous week. November beans fell $1.47 for the week ended Sept. 5.

Informa Economics’ new crop forecast pegged U.S. bean yield at 41.4 bu./acre versus their August 42.0 bu./acre figure and the USDA’s 40.5 bu./acre. They are predicting the crop will reach 3.035 billion bushels, slightly lower than their August prediction of 3.054 billion bushels but above the USDA’s last estimate for 2.973 billion bushels.

The U.S. Census Bureau’s July report released this week showed that the U.S. consumed a record 503 million pounds of fat and oil to produce biodiesel. However, soyoil use was down from June’s 279 million pounds to 271 million pounds in July.

Argentina is again experiencing localized farmer strikes. Market talk is that China is again looking around for other sources of beans. The Brazilian real plummeted to its lowest level in almost four months as concern grows about their economy and what will happen to the demand for their exports.

One noted publication questions how many additional soybean acres will be planted this fall at current prices and exchange rates. China’s National Development and Reform Commission reported this week that China wants to limit crushing capacity to 75 million tons by 2010 and to 65 mmt by 2012; down from an estimated capacity of 77 mmt in 2007 (an estimated 44 percent of capacity was used).

Export sales were as expected at 1.6 million old crop and 8.7 million bushels for new crop. Meal sales were impressive at 101,100 metric tons for old crop and 46.8 tmt for new crop.

OUTLOOK: November beans finished the week giving back all of the gains made in the last half of August after the recent yield adding rains and Informa numbers were released, pushing prices beneath the August low of $11.68. The next level of support under $11.68 is $11.34, then the $10.45 1/4 low set back in April.

How the heavy rains in the Delta affected bean yield and quality is yet to be determined, but consolidating/lower trade may be expected before the USDA releases numbers on Sept. 12.

Nystrom Notes: Crude oil was down $9.23 for the week ended Sept. 5 with gasoline futures down almost 17 cents, and heating oil down nearly 21 cents. The U.S. dollar index was up 1.519 to 78.89.

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