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BRIAN HOOPS

By Staff | Aug 21, 2009

Corn

In last week’s August supply/demand report, the U.S. Department of Agriculture forecast U.S. corn production at 12.761 billion bushels, up 5 percent from last year, but 2 percent lower than 2007.

Based on conditions as of Aug. 1, yields are expected to average 159.5 bushels per acre, up 5.6 bushels from last year. If realized, this will be the second highest yield on record, behind 2004, and production will be the second largest, behind 2007.

This also was easily the highest USDA August corn yield estimate on record, surpassing last year’s August estimate of 155 bushels/acre. Forecasted yields are higher than last year across the central Great Plains and western Corn Belt where mild temperatures and adequate soil moisture supplies provided favorable growing conditions.

Expected yields were also higher across much of the Ohio and Tennessee valleys and Atlantic Coast where beneficial moisture this year contrasted with exceptionally dry conditions last year.

Yield prospects are lower in the central Corn Belt where excessive spring moisture delayed planting and below normal temperatures slowed corn emergence and development. Growers expect to harvest 80 million acres for grain, down 100,000 acres from June, but up 2 percent from last year.

As for demand, the USDA raised feed/residual usage for next year by 100 million bushels to 5.300 billion, raised exports by a surprising 150 million bushels to 2.1 billion and raised corn for ethanol usage by 100 million bushels to 4.2 billion.

Due to the larger than expected crop size, the USDA seems to have manufactured 350 million bushels in new demand. For ending stocks, USDA raised the 2009-2010 U.S. corn ending stocks by 71 million bushels to 1.6 billion. This was a bit below the average trade estimate of 1.7 billion bushels due to the USDA’s unexpectedly aggressive demand revisions.

Based on a crop size of over 12.8 billion bushels and a more realistic view of demand, new crop stocks could easily be closer to 1.9 billion bushels versus the USDA’s 1.621 billion bushel estimate.

Soybeans

Soybean production is forecast at a record high 3.2 billion bushels, up 8 percent from last year. Based on Aug. 1 conditions, yields are expected to average 41.7 bushels per acre, up 2.1 bushels from 2008.

Interestingly, this was the highest forecasted August yield in history. If realized, this will tie for the fourth highest yield on record. With the exception of Illinois, yields are forecast higher or unchanged from last year across the Corn Belt and Great Plains. The largest increase in yield is expected in Ohio, up 11 bushels from 2008.

In contrast, yield prospects are forecast lower than last year in Alabama, New York, North Carolina and South Carolina. Area for harvest in the U.S. is forecast at 76.8 million acres, up slightly from June and up 3 percent from 2008.

For the demand ledger, revisions were mostly disappointing as USDA lowered new crop exports by 10 million bushels to 1.265 billion, while also lowering crush by 110 million bushels, as well, to 1.67 billion. Nonetheless, the lower production resulted in new crop ending stocks being lowered by 40 million bushels to 210 million.

With the average trade estimate at 221 million bushels the market was also deeming this marginally supportive. Remember, it will all come down to the final crop size, as a crop more in the 3.26 to 3.3 billion bushel range, will put new crop ending stocks near 275 to 300 million bushels.

Corn analysis

Corn closed the week $.02 3/4 lower. The weekly export sales report showed net sales of 541,200 metric tons were up 28 percent from the previous week, but down 7 percent from the prior four-week average. Increases reported for

Japan (345,600 MT, including 95,500 MT switched from unknown destinations), South Korea (88,000 MT), Tunisia (50,000 MT), Guatemala (40,000 MT), Mexico (34,300 MT), Taiwan (28,100 MT), and Lebanon

(25,500 MT, switched from Egypt), were partially offset by decreases for unknown destinations (91,900 MT) and Egypt.

For the marketing year, the U.S. has now exported 1.863 bb of corn compared to 2.419 bb last year. As of Aug. 9, the 2009 crop was rated at 68 percent as good-to-excellent versus 67 percent a year ago. This is the highest rated crop in the last five years and the second highest crop rating in the last 9 years.

Current yield estimates are 159 bpa, but this could increase with beneficial weather until harvest.

Soybean analysis

Soybeans closed the week $.66 3/4 lower. The weekly export sales report showed net sales of 259,500 MT were down 48 percent from the previous week and 13 percent from the prior four-week average.

Increases were primarily for Indonesia (86,000 MT), Taiwan (74,600 MT), China (60,900 MT), Japan (33,600 MT), and Cuba (8,000 MT). Decreases were reported for unknown destinations (4,800 MT). For the marketing year, the U.S. has now exported 1.3 bb of soybeans compared to 1.149 bb last year.

This is the highest rated soybean crop in the last five years and the second highest rated soybean crop in the last 15 years. Soybeans are currently in the key pod-setting stage. Soybeans have rallied over $1.50 as the market has added in weather premium due to a hot and dry forecast for early August.

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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