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BRIAN HOOPS

By Staff | Sep 4, 2009

CORN

August was a bearish month for corn prices as corn lost $.20 1/2. The growing season is effectively over for corn with only ear fill and test weight issues affecting the size of the crop. An early frost could severely hurt corn’s yield potential as the crop is far from maturity.

Early September should produce a small price decline, as the market will fear another increase in the production estimate from the USDA. In August, the USDA revealed a surprisingly large U.S. corn crop. The USDA reported the U.S. corn production estimate at a record large 12.7 billion bushels, a 471 million bushel larger than the July estimate. History tells us the USDA will again increase the production estimate in September.

This means the market should push lower in the first half of the month of September as the market prepares for harvest. Harvest should begin later this year than normal and normally harvest lows also occur later than normal.

In the August report, the USDA also projected usage would reach 12.87 bb, up 350 mb from the July estimate. While the ending stocks are projected to be a comfortable 1.62 bb, the corn market will remain sensitive as an early frost will trim these figures. Look for the last half of the month to find price appreciation on end user buying.

SOYBEANS

August was a bullish month for soybean values as soybeans gained $.29 during August. They say soybeans are a crop of August and the weather during August could not have been more ideal for soybean development.

The one negative about the August weather was the cooler than normal temperatures during the month. However, a large portion of the soybean belt received beneficial rains throughout the month.

The August USDA supply/demand report revealed a 3.199 bb U.S. soybean crop, down 60 mb from the previous month, but still record large.

With excellent growing conditions during August, the trade will believe the USDA will increase production in the September supply/demand report after lowering yield expectations in August.

Demand has been improving for soybeans with China buying a huge amount of soybeans due to a potential drought in their country that would increase their demand for world soybeans. Unless there is a major surprise in the September supply and demand report, we can expect harvest pressure to pull us lower into late September establishing harvest lows, before commercial accounts buy back in and prices rally into January on strong world demand and tight U.S. ending stocks. Harvest should begin in mid to late September for the soy belt and finish by late October. Hedgers and traders should look to re-own cash sales by the end of the month on price weakness.

Corn analysis

Corn closed the week $.00 3/4 higher. The weekly export sales report showed net sales of 265,600 metric tons were down 54 percent from the previous week and 47 percent from the prior four-week average.

Increases reported for Japan (310,100 MT, including 107,500 MT switched from unknown destinations and decreases of 68,500 MT), Taiwan (59,400 MT, including 57,900 MT switched from Egypt), South Korea (46,500 MT), Mexico (30,000 MT), Morocco (14,800 MT, switched from unknown destinations), and Venezuela (10,500 MT), were partially offset by decreases for unknown destinations (173,100 MT) and Egypt (45,400 MT).

Net sales of 707,600 MT for delivery in 2009/10 were primarily for unknown destinations (275,100 MT), Mexico (172,300 MT), Egypt (120,000 MT), and Syria (85,000 MT). Decreases were reported for Saudi Arabia (60,000 MT) and Israel (30,000 MT). Exports of 1,275,000 MT were up 14 percent from the previous week.

As of Aug. 23, the 2009 crop was rated at 70 percent good-to-excellent versus 64 percent a year ago. This is the highest rated crop in the last five years and the second highest crop rating in the last nine years.

Current yield estimates are 159 bushels per acre, but this could increase with beneficial weather until harvest. Due to slow demand trends, ending stocks could and will likely swell to over 2 billion bushels. With the large ending stocks figure, it does not leave a very bullish outlook for prices over the next four months. Producers should be prepared to reward rallies with additional sales and hedges.

Soybean analysis

Soybeans closed the week $.38 higher. The weekly export sales report showed net sales of 87,900 MT were down 68 percent from the previous week and 72 percent from the prior four-week average. Increases were primarily for Japan (136,500 MT, including 100,000 MT switched from unknown destinations and decreases of 2,400 MT), Cuba (16,300 MT), Turkey (8,500 MT), Taiwan (8,000 MT), and Peru (5,000 MT). Decreases were reported for unknown destinations (99,000 MT) and the Philippines (3,000 MT).

The USDA rated the soybean crop, as of Aug. 23, at 69 percent g/e, 8 percent higher compared to last year’s crop rating of 61 percent. 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 in the final key pod-setting stage with 85 percent of the crop setting pods. China purchased U.S. soybeans and their purchases will tighten new crop balance sheets. Drought concerns in China have them buying U.S. soybeans in case their crop is shortened. U.S. weather still looks good and a big harvest is still coming, so look for prices to work lower after Labor Day.

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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