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BRIAN HOOPS

By Staff | Jun 19, 2009

On June 10, the USDA released the June supply/demand report. The report was considered to be constructive for the corn market with the USDA lowering the per-acre yield of corn and reducing new crop corn stocks near the 1 billion bushel mark.

The USDA forecast corn yield at 153.4 bushels per acre, down 2 bpa from last month. This resulted in new crop ending stocks being estimated at 1.090 billion bushels versus estimates of 1.071 bb. This is down 55 million bushels from last month. Ending stocks for the 2008-09 crop year were estimated at 1.6 bb versus pre-report estimates of 1.607 bb.

If stocks fall below 1 billion bushels, look for a strong bidding war to develop by next spring as corn tries to regain lost stocks through larger supplies in 2010.

The USDA forecast ending stocks for the 2008-09 soybean crop to be 110 million bushels versus estimates of 114 mb while stocks for the 2009-10 crop year are estimated at 210 versus pre-report estimates of 211 mb. This is down 20 mb from last month. The USDA did not make any significant revisions to the soybean balance sheets other than increasing export demand.

The USDA estimated all winter wheat production at 2.016 bb, 10 mb less than a month ago and slightly less than pre-report estimates of 2.021 bb. Winter wheat production is forecast at 1.49 billion bushels, down less than 1 percent from the May 1 forecast and 20 percent below 2008.

Expected area for harvest as grain or seed totals 34.0 million acres, unchanged from May 1. The U.S. yield is forecast at 43.9 bushels per acre, down 0.3 bushel from last month and 3.3 bushels less than last year. Hard red production is down less than 1 percent from a month ago to 868 million bushels.

Soft red production is down 2 percent from last month and now totals 415 million bushels. White production totals 209 million bushels, up slightly from last month. Of the white production total, 21.1 million bushels are hard white and 188 million bushels are soft white.

The USDA predicted U.S. wheat stocks at 669 mb, in line with the average estimate for 2008-09 stocks of 671 mb, while the USDA estimated stocks for the 2009-10 crop year at 647 mb, above estimates of 606 mb.

Corn analysis

Corn closed the week $.14 1/2 lower. The weekly export sales report showed net sales of 713,100 metric tons were up 18 percent from the previous week, but down 4 percent from the prior four-week average.

Increases reported for Japan (296,200 MT), Taiwan (102,200 MT), Mexico (95,300 MT), Colombia (43,300 MT), and unknown destinations (43,200 MT). For the marketing year, the U.S. has now exported 1.639 bb of corn compared to 2.327 bb last year.

To reach the USDA forecast, the U.S. needs to export 10.1 mb each week. Planting is all but finished in the U.S. The USDA is now issuing good-to-excellent ratings on a weekly basis for corn.

As of June 7, the 2009 crop was rated at 69 percent g/e versus 60 percent a year ago. Iowa was rated 81 percent g/e, Minnesota was

rated 75 percent g/e with Nebraska rated 84 percent g/e, Illinois rated 57 percent g/e and Indiana rated 64 percent g/e.

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. Seasonal highs for corn normally occur by June 23, so producers need to finalize their market plans soon.

Soybean analysis

Soybeans closed the week $.20 higher. The weekly export sales report showed net sales reductions of 61,000 MT resulted as increases for Canada (26,600 MT), Mexico (12,400 MT), Japan (11,100 MT), and Vietnam (6,200 MT), were more than offset by decreases for unknown destinations (73,500 MT) and China (55,000 MT).

Net sales of 280,100 MT for 2009-10 delivery resulted as increases for unknown destinations (226,500 MT, including 91,500 MT switched from the 2008-09 marketing year), Mexico (53,600 MT), and Cost Rica (8,000 MT).

For the marketing year, the U.S. has now exported 1.237 bb of soybeans compared to 1.113 bb last year. The U.S. now has to export an average of 1.1 mb each week to meet the USDA forecast.

Planting progress is slower than normal, but the U.S. soybean crop will soon be seeded. U.S. seedings have now reached 78 percent planted versus 76 percent last year and 87 percent on average. Iowa is ahead of pace at 95 percent planted with Minnesota at 97 percent seeded.

In the eastern Corn Belt, Illinois is only 59 percent planted with Indiana 69 percent planted.

Seasonal highs are achieved by June 23 for soybeans and commercials are noted as holding a bearish net short position.

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.

STRATEGY & OUTLOOK

Producers should have over 90% of their 2008 crop sold and/or hedged. The other 10% should be sold on a 20

to 30 cent rally or by the end of June. Producers should have managed their risk by placing new crop hedges as

December has reached the initial upside target of $4.25 to $4.50 range. A combination of cash sales, hedges

and put options are effective risk management tools. If the new crop December contract can rally to $4.75 to

$5.00, producers should look to raise protection levels by rolling the put options to a higher strike price.

Producers should have over 90% of their 2008 crop sold and/or hedged. The other 10% should be sold on a 40

to 70 cent rally or by the end of June. Hedgers should now be considering placing new crop hedges as November

soybeans have reached the long held target to begin a hedging program. A combination of cash sales,

hedges and put options are all viable marketing strategies to reduce price risk. If the new crop November contract

can rally to $11.50 to $11.75, producers should look to raise protection levels by rolling the put options to

a higher strike price.

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