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BRIAN HOOPS

By Staff | Jun 5, 2009

CORN: The outlook for prices is simple as weather and how it impacts the emerging crops will be 95 percent of the pricing movement. The only other supply side news the market will deal with is the June 10 USDA monthly supply/demand crop report. Last month’s report put the ending stocks report for the 2009/10 crop at 763 million bushels.

This was a bullish surprise to the market as this ending stocks figure was well below trade estimates. This tight ending stocks figure will put a solid floor underneath prices until an above trend line yield can be confirmed.

A slow planting season followed by a slow emergence pace, have good to excellent crop ratings very low to start the month of June. If these crop ratings begin to fall in the month of June, the market will have no choice but to rally sharply to ration the ending stocks.

Since the May report was a bullish surprise, anticipate some buying ahead of the report release on the morning of June 10. The market will want to be bullish because of the long term fundamental picture; including smaller seeded acres compared to last year and a poor start to the growing season. However, it will take weather concerns to ignite a rally.

Producers will want to use options as a way to manage risk and provide price insurance. The end of the month will also have the quarterly stocks and planting intentions report from the USDA. This report could be a shocker to the market as some reports have farmers decreasing seeded acres from the last report in March due to the excessive rains in the eastern Corn Belt.

Some corn acres may be idled as they remain too wet to plant while some acres will no doubt be switched over to soybeans. Seasonal highs are usually formed by June 23.

SOYBEANS: The month of June looks to be similar to corn as we are in a weather market and weather forecasts will be the primary driving force. The early pace for seeding soybeans is historically slow as there should be approximately 25 to 30 percent of the crop yet to be seeded. The crop looks to be seeded before June 15 leaving beans to spend the rest of June developing its root system.

Rains after June 15 will be viewed as beneficial to crop development and negative for prices. However, dryness in the month of June will send prices sharply higher. Demand has remained strong for U.S. beans as the soybean crops in Argentina and Brazil have been harvested and found to be smaller than previously forecasted. Since there are fewer soybeans for sale in South America, China has returned as a strong buyer of U.S. soybeans. This recent strong buying has cut into old crop ending stocks leaving U.S. stocks at only 130 million bushels according to the May USDA report. For new crop, the USDA forecasted ending stocks at only 230 mb, a very small amount considering U.S. producers are seeding 11.1 million more acres over last year. Like the corn market, producers should use options as a risk management tool and price insurance.

The month of June is not the key reproductive month for soybeans, however. The market will be quick to add a premium into prices on less-than-ideal weather. The acreage report at the end of the month could be a shocker to the trade.

The market has already anticipated larger seeded acres than 2008, however, if producers planted fewer acres to corn than previously thought and switched to soybeans, prices could find pressure after the report’s release. Seasonal highs are usually formed by June 23.

Corn trade analysis

Corn closed the week $.06 higher. The weekly export sales report showed net sales of 756,200 metric tons were up 11 percent from the previous week, but down 12 percent from the prior four-week average. Increases reported for

Taiwan (175,700 MT), Japan (175,400 MT, including 101,200 switched from unknown destinations. For the marketing year, the U.S. has now exported 1.587 billion bushels of corn compared to 2.286 bb last year. To reach the

USDA forecast, the U.S. needs to export 12.6 mb each week. Planting progress remains behind normal, but there is a large amount of progress being made in the eastern Corn Belt and the progress pace is nearly identical to last year’s.

As of May 24, the U.S. was 82 percent seeded versus 86 percent a year ago. Illinois is now 62 percent completed with Indiana at 55 percent seeded.

Iowa is on pace at 97 percent planted with Minnesota 96 percent seeded. Corn continues to find strength from the crude oil market, which has rallied over $30 per barrel over the last four months. Unless crude oil breaks, corn looks to remain well supported.

Soybean trade analysis

Soybeans closed the week $.18 higher. The weekly export sales report showed net sales of 237,400 MT were down 65 percent from the previous week and 63 percent from the prior 4-week average. Increases were primarily for Mexico (61,700 MT), China (59,300 MT, including 55,000 MT switched from unknown destinations), Japan (52,900 MT, including 27,000 MT switched from unknown destinations), Canada (18,300 MT), and Taiwan (17,500 MT).

For the marketing year, the U.S. has now exported 1.241 bb of soybeans compared to 1.092 bb last year. The U.S. only needs to average less than a million bushels to reach the USDA forecast.

The planting progress is much slower than normal as producers remain focused on planting corn and spring wheat. However, rapid progress has been made in areas that are further along, soybean planting is ahead of normal. U.S. seedings have now reached 48 percent seeded versus 49 percent last year.

Iowa is ahead of pace at 80 percent planted with Minnesota 75 percent seeded.

Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien.

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