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BRIAN HOOPS

By Staff | Dec 4, 2009

CORN

November was a bullish month as prices rallied 31 1/4 cents in November. The November USDA supply/demand report estimated the corn crop at 12.9 billion bushels, the second largest crop in history, however this was down from the October estimate. Carryover stocks at the start of next year’s harvest were estimated at 1.625 bb, nearly 500 million bushels more than what was projected at this time last year.

Usage remains at a record large pace of 12.980 bb. It is interesting to note that demand is forecast to out pace production, despite the second largest corn crop in history. While total usage is outstanding, export demand is painfully slow.

Through mid-November, cumulative U.S. corn export inspections have been 373 million bushels, representing just 17.8 percent of the USDA’s export projection of 2.1 bb. Since 1980/81, this would be the lowest level of mid-November exports relative to annual exports, falling just below the 18.1 percent in 1994/95.

This implies the USDA will be forced to lower the export forecast and reduce expected demand. The USDA supply/demand report on Dec. 11 looks to lend little direction to prices, with no production adjustment and the USDA likely to lower demand forecasts by 15 to 25 mb.

Fund-buying is the most bullish driving force for prices with farmer hedge pressure limiting rallies.

SOYBEANS

November was a bullish month as prices rallied 75 cents in November. The November USDA supply/demand report estimated the soybean crop at 3.319 bb, 69 mb larger than last month’s crop and a record large production figure.

Carryover stocks at the start of next year’s harvest are estimated at 270 mb, 65 mb more compared to last year’s estimate. Demand is also at a record large pace, led by record exports of soybeans, mostly to China.

Total demand is forecast at 3.195 bb with exports at 1.325 bb. Production looks to outpace demand this year, but that could change quickly if U.S. producers cut back on soybean production in 2010.

Brazil and Argentina currently are planting their crops under great weather conditions and at a record pace. Note: Brazil and Argentina store little to no excess grain, as storage elevators are absent from the countryside, not like in the U.S. Grain goes from field to port, which means they need to forward contract, or pre-sell their crop before it’s harvested to insure it doesn’t pile up on the farm.

This means South America will post its price for beans under any U.S. price to insure they capture the export business, as there is nowhere to store it. From the start of the U.S. harvest in October until South American soybean harvest in March, the big demand window for U.S. soybeans as South American supplies are unavailable and the U.S. is the only port of origin for the world’s needs.

China remains the world’s largest importer of soybeans as its growing economy demands high protein and oil contents.

The USDA supply/demand report on Dec. 11 looks to lend little direction to prices, with no production adjustment and the USDA likely to raise export forecasts by 5 to 10 mb as weekly export sales remain strong.

Corn analysis

Corn closed the week $.06 1/4 higher. With producers nearly finished with the soybean harvest, corn harvest progress is picking up steam and harvest pressure is increasing.

The USDA reported the U.S. corn harvest advanced to 68 percent complete from 54 percent last week and compares to 87 percent last year and 94 percent average. Illinois advanced only 8 percent last week to 60 percent and compares to 98 percent average, while Iowa is now 78 percent complete versus 59 percent last week and 94 percent average. Minnesota jumped sharply to 66 percent harvested from 43 percent last week, but compares to 96 percent average.

The weekly export sales report showed net sales of 1,223,600 metric tons – a marketing-year high – were up noticeably from the previous week and from the prior four-week average.

Increases were reported for Mexico (664,400 MT), Japan (286,400 MT, including 109,300 MT switched from unknown destinations), South Korea (119,000 MT), Canada (32,200 MT). So far, this year’s sales are outpacing last year’s figures, 736 mb versus 704 mb.

The U.S. needs to export 33.7 mb each week to reach the USDA forecast. The sentiment index has reached 100 percent, the highest level since June 2008 when the long-term highs were established.

Strategy and outlook: Producers should have increased hedges to the 70 percent level. The strong rally without fundamental bias should encourage producers to sell the product now and use price weakness to re-own the crop with futures and options.

Buy July options on a pullback into a retracement level. Begin selling 2010 crop with December futures above $4.50.

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