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BRIAN HOOPS

By Staff | Dec 18, 2009

The December report rarely provides much in terms of fireworks and the report that was released on Dec. 10 did not prove to be much different.

CORN

The U.S. corn ending stocks rose 50 million bushels from last month, which was higher than the average guess, but still seemed well within the average range of estimates. This really shouldn’t come as much of a surprise.

Corn exports were lowered 50 million bushels based on the slow pace of shipments to date and increased competition from larger supplies in Ukraine.

At the projected 1,675 million bushels, ending stocks would be nearly unchanged from 2008/09. The 2009/10 marketing-year average farm price projection for corn is unchanged at $3.25 to $3.85 per bushel

SOYBEANS

There is very little to discuss from the soybean balance sheet as well. Soybean exports are increased 15 million bushels to 1.34 billion reflecting the record export pace in recent weeks and higher projected soybean imports by China. U.S. export commitments (shipments plus outstanding sales) were record high through November, up almost 60 percent from a year ago.

With projected crush unchanged, soybean ending stocks for 2009/10 are projected at 255 million bushels, down 15 million from last month. All other demand figures were left alone.

As you can imagine, with no change to the crush part of the soybean balance sheet, there is also not much change to the product balance sheets. Total U.S. oilseed production for 2009/10 is projected at 97.9 million tons, up fractionally due to a small increase in cottonseed. Soybeans and product price projections are all higher this month.

The U.S. season-average soybean price range for 2009/10 is projected at $8.75 to $10.25 compared with $8.20 to $10.20 last month. The soybean meal price is projected at $260 to $310 per short ton, up $10 on the bottom of the range. Soybean oil prices are projected at 35.5 to 38.5 cents per pound compared with 33 to 37 cents last month.

Corn analysis

Corn closed the week $.16 higher. Corn harvest is essentially over, although there is still some corn left in the field that will unlikely be harvested. With the remaining crop unharvested, end users will be concerned they would not be able to get enough crop to meet feed and fuel demand.

Producers need to be making sales on rallies into resistance levels. Commercials have also been aggressively selling into this rally and are now short over 91,000 contracts. With the commercial selling, prices have stalled during the last eight weeks of trading. After the calendar turns to 2010, expect increased farmer selling for tax and quality purposes.

The USDA reported the U.S. corn harvest advanced to 88 percent complete from 79 percent last week. Illinois advanced to 85 percent harvested, while Iowa is now 94 percent complete and Minnesota is 78 percent harvested. The weekly export sales report showed net sales of 847,700 metric tons were up 29 percent from the previous week and 25 percent from the prior four-week average.

Increases were reported for Japan (271,000 MT, including 84,700 MT switched from unknown destinations and decreases of 22,700 MT), Cuba (122,800 MT), Mexico (103,600 MT), South Korea (91,700 MT, including 57,800 MT switched from unknown destinations), Colombia (72,000 MT), Syria (55,000 MT), and the Dominican Republic (39,800 MT). So far, this year’s sales are outpacing last year’s figures, 843 million bushels versus 772 mb. 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.

Soybean analysis

Soybeans closed the week $.08 lower. Soybean demand remains strong as China purchased 348,000 mts of U.S. soybeans last week. Planting season in Brazil is off to a record pace and will be closely monitored throughout the winner. The last two winters have seen drought in South America and higher soybean prices as a result. A record planting acreage in South America and a record crop will no doubt hurt soybean values.

The weekly export sales report showed net sales of 927,700 MT were up 41 percent from the previous week, but down 15 percent from the prior 4-week average. The primary destinations were China (613,700 MT, including 57,000 MT switched from unknown destinations and decreases of 33,100 MT), the Netherlands (130,400 MT, including 130,000 MT switched from unknown destinations), Japan (113,300 MT, including 54,000 MT switched from unknown destinations), Indonesia (72,400 MT, including 58,000 MT switched from unknown destinations), Germany (65,100 MT), and Egypt (47,500 MT).

This year’s export profile remains well ahead of last year’s record pace, 1052 mb vs. 675 mb.

Strategy and outlook: Producers should have increased hedges to the 70 percent level. With the tight basis levels and lack of carry in the market, the market is telling 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 November futures above $10.30.

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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