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BRIAN HOOPS

By Staff | Jul 17, 2009

On July 10, the U.S. Department of Agriculture revealed its latest supply and demand report. The report was considered negative for prices as the USDA offered little in the way of fundamental support for corn, soybeans or wheat.

Corn: The USDA lowered old crop corn feed, residual usage by 100 million bushels to 5.250 billion bushels. USDA also sharply lowered corn for ethanol usage by 100 million bushels to 3.650 billion. As a counter to the demand reductions, the USDA bumped old crop corn exports higher by 50 million bushels to 1.800 billion.

The net result was a solid 170 million-bushel increase in 2008/09 to U.S. corn ending stocks to 1.77 billion bushels.

This was above the market’s expectations for stocks of 1.69 billion bushels. For 2009/10, USDA made the expected supply-side revisions, reflecting the June 30 acreage estimates, while leaving its yield estimate unchanged, resulting in a 355 million bushel increase to its production assumption to 12.290 billion, the second largest crop since 1946.

Incorporating the increase in beginning stocks, USDA raised new crop total supplies by 525 million bushels this month to 14.075 billion and compares to last year’s 13.740 billion. On the demand side, the USDA did slightly bump demand ideas higher. However, the changes were modest with 2009/10 feed usage raised 50 million bushels to 5.2 billion, while exports

were raised 50 million bushels to 1.950 billion. The USDA raised 2009/10 U.S. corn ending stocks expectations by a substantial 460 million bushels to 1.550 billion.

This was the second largest June to July new crop ending stocks increase on record. The increased stocks places less emphasis on the 2009 crop.

Worldwide ending stocks jumped a substantial amount to 139.17 million tons from 125.46 mts last month.

Soybeans: For new crop soybeans, the USDA reflected the increased soybean acreage, while leaving yields unchanged, raising the new crop production estimate by 65 million bushels to 3.26 billion, the largest crop in history.

Minor demand increases were widespread with exports raised 15 million bushels to 1.275 billion, crush up 5 million to 1.68 billion, seed up 2 million and the residual up 2 million.

In all, the USDA raised new crop demand by 23 million bushels, but ending stocks still jumped by 40 million bushels this month to 250 million. While this is still historically tight, the market does not need to ration this figure.

The USDA left the 2009/10 Argentine, Brazilian and Chinese soybean balance sheets unchanged, while 2009/10 worldwide stocks are now seen at 51.8 million metric tons versus 51 MMT last month.

Corn analysis

Corn closed the week $.17 1/2 lower. The weekly export sales report showed net sales of 749,200 MT were down 35 percent from the previous week and 10 percent from the prior four-week average.

Increases reported for Japan (254,600 MT, including 37,700 MT switched from unknown destinations and decreases of 22,000 MT), South Korea (146,400 MT, including 113,000 MT switched from unknown destinations and decreases of 11,800 MT), Egypt (123,700 MT, including 58,000 MT switched from unknown destinations), Mexico (52,400 MT), and Canada (47,300 MT).

For the marketing year, the U.S. has now exported 1.771 billion bushels of corn compared to 2.376 bb last year. To reach the USDA forecast, the U.S. needs to export 1.1 million bushels each week to reach the USDA forecast of 1.750 bb.

As of July 5, the 2009 crop was rated at 71 percent good-to-excellent versus 62 percent a year ago.

Iowa was rated 82 percent g/e, Minnesota was rated 82 percent g/e with Nebraska rated 84 percent g/e. Illinois was rated 57 percent g/e and Indiana was rated 64 percent g/e.

Seasonal highs are in for the corn market and unless a major weather problem unfolds across the Corn Belt, prices should drift lower into harvest. The market is likely to have small technical bounces that need to be sold.

Soybean analysis

Soybeans closed the week $1.09 1/4 lower. The weekly export sales report showed net sales of 287,000 MT were up 48 percent from the previous week and up noticeably from the prior four-week average.

Increases reported for China (283,500 MT, including 55,000 MT switched from unknown destinations), Tunisia (26,900

MT, including 25,000 MT switched from unknown destinations), Mexico (24,800 MT), South Korea (21,000 MT, including 20,000 MT switched from unknown destinations) and Japan (11,400 MT), were partially offset by decreases for unknown destinations (98,100 MT) and Colombia (1,100 MT).

For the marketing year, the U.S. has now exported 1.261 bb of soybeans compared to 1.129 bb last year. The U.S. now has to export an average of 0.1 mb each week to meet the USDA forecast of 1.250 bb. Planting progress is now reaching completion, except for areas in the eastern belt that will double-crop soybeans after harvesting winter wheat. The USDA rated the soybean crop, as of July 5, at 66 percent g/e, 5 percent higher than last year’s crop.

Iowa is rated 80 percent g/e, Minnesota is rated 74 percent g/e, Illinois is rated 60 percent g/e while Indiana is 64 percent g/e.

With the six- to 10-day forecast turning drier and the reproductive timeframe still in front of the market, look for the market to stabilize and even work higher.

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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