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BRIAN HOOPS

By Staff | Oct 9, 2009

CORN

The month of September was bearish for prices as values lost $.06 1/2. In the September monthly supply/ demand report, the U.S. Department of Agriculture estimated the crop at 12.954 billion bushels, up 193 million bushels from last month’s estimate.

This should indicate a pattern of increasing crop sizes as harvest gets underway. The USDA estimated total demand for U.S. corn at 13.025 billion bushels, 150 million bushels larger than last month.

This leaves ending stocks at 1.635 billion bushels, up slightly from 1.621 bb last month and below last year’s 1.695 bb. The month of October is our harvest month when most of the pressure on prices is seen.

As of Oct. 1, harvest progress had only reached 10 percent, indicating commercial buying should improve during October as foreign countries are normally strong buyers of freshly harvested U.S. corn.

Export commitments are running 13 percent ahead of last year, and look to improve with the weakness in prices. As long as China remains out of the export market, Asian countries have no choice but to buy U.S. corn to meet their needs.

The market should find mild pressure against prices as a large amount of producers have already contracted grain for harvest during the springtime frame.

Into the October USDA report, traders will anticipate another increase in production as was seen in the September report. Note that the USDA production estimate in October has exceeded the average trade estimate in 10 of the last 10 years.

SOYBEANS

The month of September was bearish for prices as values lost $.42 during the month. Expectations for a huge soybean crop has been the main bearish selling indicator. In the monthly USDA supply/demand report, the

USDA forecasted the soybean crop at a record 3.245 billion bushels, up 46 million bushels from last month’s estimate.

The USDA estimated total demand for U.S. soybeans at 3.145 bb, indicating the U.S. would produce more soybeans that it would consume, leading to an increase in ending stocks. During harvest, Chinese demand for soybeans should improve with U.S. soybeans having a high protein value.

South America will not begin harvesting its crop until March. This leaves October until mid-March as a bullish timeframe for U.S. soybean demand. Currently, export commitments are running 48 percent above a year ago. Ending stocks are comfortable at 220 mb.

As of Oct. 1, harvest progress had reached 10 percent, behind the average pace of 21 percent. We would normally find price weakness into the October USDA report as traders will anticipate another increase in production. It is interesting to note that the October production estimate has come in under the average trade estimates in six of the last 10 years.

WHEAT

The month of September was bearish for prices as values lost $.13 1/4 during the month. The September USDA small grains report was bearish for prices as the USDA forecasted production at 2.22 bb, up 2 percent from

August, although that is 11 percent below 2008

The USDA will re-survey U.S. producers and release its findings in the November supply/demand report. This increase in production combined with the anemic export pace of wheat is driving wheat prices lower.

So far, this marketing year has wheat export sales are 63 percent below last year, and last year was a very poor export year for wheat. The other fundamental for price direction for wheat would be winter wheat seeding.

As of Oct. 1, winter wheat seeding is 42 percent compared to 42 percent last year.

U.S. and world producers are likely to decrease seeded acres again this fall as prices are well below last year’s strong levels. I look for producers to again plant 2 to 4 million less acres compared to a year ago.

Corn analysis

Corn closed the week $.00 1/2 lower. The weekly export sales report showed net sales of 1,223,400 Metric tons were up 82 percent from the previous week. Increases were reported for Japan (586,900 MT, including 97,400 MT switched from unknown destinations), South Korea (200,500 MT, including 55,400 MT switched from unknown destinations), Mexico (185,100 MT), Guatemala (94,900 MT), Taiwan (92,900 MT), Colombia (53,600 MT, including decreases of 15,400 MT), Peru (49,700 MT), and Venezuela (40,000 MT).

Decreases were reported for unknown destinations (98,100 MT), Egypt (22,600 MT), and Panama (8,000 MT).

So far, this year’s sales are outpacing last year’s figures, 611 mb versus 532 mb. The US needs to export 32.4 mb each week to reach the USDA forecast. The USDA estimated 90 percent of the crop is now dented and 5 percent is harvested. What was once thought to be a record-breaking crop, is now being regarded as a disappointment. Very early results are less than expected, but still very good. This year’s crop will be big and when you combine this year’s crop with swelling ending stocks, it leaves a bearish outlook for prices over the next four months.

Daily charts have a potential double top at $3.46. Unless this is broken, look for the funds to begin to sell short the market as they will expect harvest pressure to weigh on values.

Soybean analysis

Soybeans closed the week $.41 lower. The weekly export sales report showed net sales of 1,384,800 MT were up 20 percent from the previous week. Increases were primarily for China (808,800 MT), unknown destinations

(359,000 MT), Thailand (67,000 MT), Japan (66,800 MT, including 37,000 MT switched from unknown destinations), Taiwan (28,500 MT), and Canada (25,500 MT).

Decreases were reported for Egypt (19,400

MT). Exports of 209,000 MT were primarily to China (118,300 MT), Japan (38,600 MT), Mexico (25,600 MT), Syria (16,600 MT), and Indonesia (4,700 MT).

This year’s export forecast is far outpacing last year’s sales profile, 741 mb versus 384 mb. The U.S. only needs to export 11.8 mb each week to reach the USDA forecast.

The USDA reported 63 percent of the soybean crop is dropping leaves while 5 percent has been harvested. Producers who have been doing early harvesting have reported much better than expected yield results.

While it is still very early, there have been some early yield reports from producers in Iowa where beans have been ranging from 55 bushels per acre to 68 bpa. There are some areas of Nebraska who are reporting mid-40’s for yields while producers in North Dakota have said they expect yields to average in the 20 bpa range.

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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