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BRIAN HOOPS

By Staff | Jan 8, 2010

CORN

The month of December was bullish for corn values as corn closed 22 cents higher. This month’s supply/demand report has the potential to be a major market mover as the USDA will issue the final production forecast for the 2009 crop and update the demand figures.

Export forecasts are nearly 200 million bushels above last year at this time. In addition, ethanol usage is also well above last year’s figures, giving corn usage a nearly 900 mb advantage over last year.

Traders are going to look for the USDA to decrease their final 2009 corn production estimate and to increase their demand estimates, thereby tightening the balance sheets.

Farmer selling should increase after the first of the year as farmers will need to move some corn to maintain the quality of the stored crop, but basis levels should narrow through the winter months.

SOYBEANS

The month of December was bullish for soybean values as soybeans closed 48 cents higher. The huge demand base for soybeans, estimated at a record 3.210 billion bushels, comes in the form of record strong export demand and a very strong crush figure. Ending stocks are forecast to remain tight at 255 mb. The market has been anticipating a record soybean crop in South America and updates on this year’s production from South America will be a major driving force for prices throughout the winter.

This month’s supply/demand report has the potential to be a major market mover as the USDA will issue the final production forecast for the 2009 crop and update the demand figures.

Export forecasts are nearly 60 mb above last year at this time and with the ongoing strong sales, look for the USDA to again tighten balance sheets and increase exports. Traders are going to look for the USDA to decrease their final 2009 soybean production estimate and to increase their demand estimates, thereby tightening the balance sheets. Farmer selling looks to be at a minimum this winter as producers are more interested in selling corn and holding onto their soybeans in case another weather problem develops in South America and prices move higher.

CORN MARKET ANALYSIS

Corn closed the week $.06 higher. Corn harvest is essentially over, although there is still some corn left in the field that will unlikely be harvested. Farmers in South and North Dakota and Minnesota, where discounts for drying corn and low test weights are signaling producers harvest corn later, are indicating they will let corn stand all winter even though stalk strength will weaken. With the remaining crop unharvested, end users will be concerned they will 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 commercial selling, prices have stalled during the last eight weeks of trading.

The calendar has turned to 2010, so expect increased farmer selling for tax and quality purposes.

Much of the 2010 crop was harvested and binned in wet conditions. Farmers will want to move some grain after the first of the year to make sure grain does not go out of condition.

The weekly export sales report showed net sales of 772,500 metric tons were down 52 percent from the previous week and 29 percent from the prior four-week average. Increases were reported for Mexico (262,800 MT), Japan (95,000 MT, including 77,400

This year’s export profile is now at 985 mb versus 828 mb a year ago.

The U.S. needs to export 28 mb each week to reach the USDA forecast of 2.05 bb.

Strategy, 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. Hedgers have sold a portion of the 2010 crop when December futures traded above $4.50.

SOYBEAN MARKET ANALYSIS

Soybeans closed the week $.40 1/4 higher. Soybean demand remains strong as a private sale of soybeans of 348,000 MT last week to China was announced by the USDA.

Demand remains strong as well as usage. The weekly export sales report showed net sales of 799,000 MT were down 33 percent from the previous week and

14 percent from the prior four-week average.

This year’s export profile remains well ahead of last year’s record pace, 1.16 bb versus 748 mb. The U.S. only needs to export 4.8 mb each week to reach the USDA forecast of 1.34 bb.

Strategy, 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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