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Analyst: Production concerns might help support corn market

By Staff | Oct 2, 2009




Farm News staff writer

Although the latest U.S. Department of Agriculture crop production report shows that U.S. corn production is forecast at 13 billion bushels, the corn supply-demand situation could get tight in 2009-2010 and change the dynamics of the market.

This assessment came from DTN market analyst Darin Newsom, who recently provided a market outlook for U.S. ag commodities during an online webinar.

“Despite the potential for the highest corn yield on record,” Newsom said, “feed, ethanol and exports are adding up to create record demand that will pull down supplies.

“The market will certainly pay attention to any threats to corn production.”

If the crop comes in as large as expected, the December contract could continue to test support between $2.90 and $3.10. An early-to-normal frost could certainly change the outlook, though, Newsom said, who noted that the non-commercial money has been leaving the corn market since mid-June.

The weather isn’t the only factor that can influence the ag commodity markets through November, however. The Dow Jones Industrial Average usually makes a key change in early- to mid-October and may be building toward a possible high for the year, said Newsom, who noted that a rally in the Dow usually adds some support to commodities. In addition, a weakening U.S. dollar continues to lend support to commodities.

Soybeans paint a different picture than corn

The soybean outlook offers a completely different scenario than corn. Due to the very tight supply-demand situation, the market appears bullish. There is a problem, however, and it’s showing up in the basis, said Newsom, who added that the non-commercial traders continue to liquidate net-long futures positions.

The United States will have to continue to ship soybeans at a record rate to meet the USDA projections.

“Due to the slow pace of soybean shipments, export shipments over this quarter will be critical,” said Newsom, who noted that the market currently remains bullish, which will possibly provide support through the fall. “This will be especially true the closer we get to the South American harvest, since Brazil, Argentina and Paraguay have the potential for record production.”

Continued strong sales, predominately to China, could spark a short-term rally in the market, with November poised to test $10.16 and possibly $10.86, Newsom added. “If the market is going to rally, it may need to be early in the fall before harvest gets into full swing.”

Cattle market offers hope, while hog market struggles

In the fat cattle market, seasonal tendencies indicate higher markets, said Newsom, who noted that the potential exists for higher cash and futures markets. One last 2009 rally in the Dow could drive cattle prices higher. “Historically, there’s a strong correlation between the Dow and the cattle market. This gives the cattle market some hope as we finish off the year.”

Although the current market structure is neutral, since the non-commercial traders continue to liquidate net-long futures, the October-November futures spread is stronger than normal, indicating a bullish fundamental outlook. October futures could rally to near $90, putting the cash market between $88 and $89. While this isn’t dramatic, it’s a step in the right direction and will depend largely on the fate of the Dow, Newsom said.

Hogs are a different story, as non-commercial traders remain bearish as they continue to build their net short futures position.

“Throw a bearish seasonal tendency on top of a bearish market structure, and it’s difficult to see lean hogs rallying this fall,” said Newsom, who looks for the cash market to trade in the mid to upper $40s.

Contact Darcy Dougherty Maulsby by e-mail at yettergirlyahoo.com.


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