The following market analysis is for the week ending Oct. 10.
CORN — Corn staged a rally this week as harvest was slow to accelerate, funds put their buying shoes on, and corn/bean spreading was noted. From the low on Oct. 1 until the Oct. 10 crop report, December corn recovered 30 cents of the previous two month’s losses. The report and forecast for clearer harvest weather stopped corn in its tracks. For the week, December corn was 10 3⁄4 cents higher to settle at $3.34 per bushel.
The U.S. Department of Agriculture updated 2014-15 balance sheets reduced both planted acres by 756,000 acres to 90.9 million acres, a cut that was smaller than trade expectations. Harvested acres were reduced 742,000 acres to 83.1 million acres. The fresh yield estimate reflected an increase of 2.5 bushels per acre to 174.2 bu./acre, slightly less than the 174.7 bu./acre projection, but still above the September 171.7 bu./acre figure. Minnesota’s corn yield was left unchanged at 170 bu./acre. Market chatter indicates the yield number will increase 2-4 bu./acre on the next report.
This year’s corn production came in at 14.475 billion bushels, again slightly lower than the 14.5 billion bushel pre-report estimate, but 80 million bushels above the 14.395 billion bushel forecast made last month. The import line was cut 5 million bushels and the feed/residual category was increased 50 million bushels. Ending stocks for 2014-15 rose 79 million bushels to 2.081 billion bushels from 2.002 billion last month and compared to the average estimate for 2.13 billion bushels. The average on-farm price fell a dime to $3.40, but is sharply lower than last year’s $4.46 average.
The most significant change on the world corn balance sheet was the 2.7 million metric ton increase in EU-27 production and a 3 mmt cut to their import forecast to 7mmt. Their import line is thought to still be too high and will likely be reduced on future reports. World ending stocks were increased from 189.9 million metric tons to 190.58 mmt, but were less than the 92 mmt expectation. The new carryout projection is the third highest ever.
Weekly export sales were slightly higher than pre-report estimates at 30.9 million bushels. We only need to average 25.5 million bushels per week to hit the USDA projection. Weekly ethanol production was up 20,000 barrels per day to 901,000 barrels per day while ethanol stocks were down 100,000 barrels to 18.7 million barrels. Ethanol margins have been squeezed with the drop in ethanol prices and are near their lowest since the first half of 2013. The board crush is around 50 cents per gallon.
Cost, Insurance and Freight corn fell to its lowest level in two years, and we’re still not competitive into Asian markets. Export values did firm as the week ended, but we are still weak. Mexico stepped in just before the USDA crop report to buy 975.4 mmt for 2014-15 and 502.92 mmt of corn for the 2015-16 crop year, likely an end user covering needs. In total, this sale was the fourth largest ever.
The Chicago Mercantile Exchange has decided that effective Oct. 27 electronic livestock trading hours will be cut for lean hogs, live cattle and feeder cattle. The new hours (in central time) will be Monday from 9:05 a.m. to 4 p.m.; Tuesday-Thursday from 8 a.m. to 4 p.m.; Friday 8 a.m. to 1:55 p.m.
OUTLOOK: Harvest progress will be delayed a day until Tuesday as the government takes a Columbus Day holiday. The markets will operate normal hours on Columbus Day, Oct. 13. Corn progress is expected to be near 25 percent complete as of Oct. 12 versus the 41 percent average. Despite the price rally in December corn, the low has likely not been seen. Carries in the market are also not likely to be earned due to the massive crop.
First resistance will stand at $3.48 1⁄2 per bushel with first support at $3.18 1⁄4, but $3 or less is anticipated before the crop is put away. Hedge pressure, the risk of export reductions over the next two months, and anticipated higher yield reports are expected to lend pressure to the corn market.
SOYBEANS — Soybeans posted a 10 1⁄4 cent gain this week to settle at $9.22 1⁄2 per bushel, after unsuccessfully trying to fill the gap on the chart at $9.56 per bushel. The high for the week was $9.55 per bushel. Funds were net buyers for the week ahead of the Oct. 10 USDA crop report. The USDA crop report initially prompted a rally on the smaller than expected 2014-15 crop, yield and production numbers; but in the end it was difficult to get bullish with a 12.6 percent stocks-to-use ratio for the 2014-15 crop year. The 2013-14 balance sheet boasts a historically tight 2.7 percent stocks-to-use ratio with only a 92 million bushel carryout.
The October U.S. soybean yield was published at 47.1 bu./acre, a half bushel less than anticipated and a half bushel higher than in September. Traders are already predicting that yield numbers will go up on subsequent crop reports. Soybean planted acres were dropped 655,000 acres to 84.2 million bushels. Production at 3.927 billion bushels was close to unchanged from last month, but was nearly 50 million bushels less than pre-report guesses. The 2014-15 carryout of 450 million bushels was smaller than expected when compared to the estimate of 472 million bushels and last month’s 475 million figure. The average on-farm price was unchanged at $10 compared to last year’s $13 per bushel. World carryout of 90.67 mmt was an increase of .50 mmt from September and near the 90.7 mmt forecast.
Conab published their first estimates for the 2014-15 Brazilian soybean crop this week. They pegged production at 90.6 mmt (mid-point of the range of estimates), well below this week’s unchanged USDA forecast of 94.0 mmt. They expect acreage to increase this coming year by 1.5 to 5.5 percent, but are using a yield that is 6 percent below trend. For corn, they are expecting a drop in acres of 1.7 to 4.6 percent for production of 77 mmt. Brazil has planted approximately 8-10 percent of their soybean crop as of Oct. 11 and will run until December.
In freight news, the Surface Transportation Board will require all Class 1 railroads operating in the United States to submit weekly reports detailing the list of products shipped and physical shipping details. This takes effective Oct. 22.
In Argentina, the government is discussing creating a new state board to control domestic grain supplies and exports. The Argentine government depends heavily on export taxes to run the country and farmers have been reluctant sellers this year as they hold crops as a hedge against sky-rocketing inflation. Their Cabinet chief said they “will use all the tools” it has to end financial speculation by grain producers and exporters.
OUTLOOK: Soybean harvest is anticipated to be 30 to 35 percent complete as of Oct. 12. The average is 55 percent, but weather should allow field work to pick up in the coming week. November’s first support is the recent $9.04 low, but we will view it as just “first” support. Resistance continues to stand at the $9.56 chart gap.
Nystrom’s notes: Contract changes for the week ended Oct. 10: Chicago December wheat rallied 12 3⁄4 cents, Minneapolis and Kansas City wheat each rose 9 3⁄4 cents per bushel. November crude oil tumbled $3.92 per barrel to $85.82, ultra-low-sulfur diesel dropped 5 1⁄2 cents, reformulated blendstock for oxygenate blending collapsed 12 cents, and natural gas fell 17 3⁄4 cents.