On Jan. 12, the USDA released its “final” USDA supply/demand report for the 2009 crop. However, they are planning on revising this report on March 10 after re-surveying unharvested corn and soybean acres across the upper Midwest.
The USDA jumped its estimate for the 2009 U.S. corn production to a new record of 13.15 billion bushels, up 230 million bushels from the last government forecast in November 2009. This was a major surprise to traders who anticipated a decline in production after a very wet harvest, which includes from 2 to 5 percent of the crop left un-harvested in fields.
The USDA figure topped the highest pre-report trade estimate of 12.99 bb. This was the second largest November-to-final yield increase in history, trailing only 1988. USDA put the final yield at 165.2 bushels per acre versus 162.9 estimated in November.
Looking at the balance sheets, as a result of first quarter feed usage being up 5 percent from last year, USDA raised 2009/10 total feed and residual usage by 150 million bushels to 5.550 billion. Usage was lowered 10 million bushels, but corn for ethanol usage was left unchanged at 4.2 bb.
USDA also left exports unchanged, at 2.05 bb. The net result from the report was an 89 mb increase in 2009/10 U.S. corn ending stocks to 1.764 bb from 1.675 billion last month and compares to last year’s 1.673 billion. Ending stocks were sharply above market expectations of 1.613 bb.
The 2009 soybean harvest was forecast at an all time record of 3.361 bb and slightly higher than the November USDA estimate of 3.319 bb. Despite the sharply lower than expected Dec. 1 stocks, USDA put the 2009/10 residual usage figure at 83 mb, essentially unchanged from last month’s 81 million.
USDA did raise exports by 35 mb to 1.375 bb and raised crush by 15 mb to 1.71 bb, both record large. With the 42 million bushel increase in production, USDA lowered 2009/10 U.S. soybean ending stocks just 10 mb to 245 mb, mostly in line with market expectations of 237 mb.
The USDA raised the Brazilian soybean crop estimate by 2 million metric tons this month to 65 mmt, but left Argentina unchanged at 63 mmt. Chinese imports were raised 1mmt to 42 mmt.
USDA raised 2009/10 world soybean en ding stocks to 59.8 mmt from 57.1 mmt last month and 42.9 mmt last year.
The USDA lowered 2009/10 feed and residual usage by 20 mb to 170 mb. The main negative influence, came from a 50 mb reduction in U.S. wheat exports to 825 mb.
Corn closed the week $.51 1/2 lower, the biggest weekly loss since July, 2009. The bearish surprise USDA report was a major negative for market prices as long speculative traders exited the market as quickly as possible.
Commercials, who have been short as identified in this newsletter previously, are buying back their shorts and will now use price weakness as an opportunity to extend coverage into the summer months which always brings uncertainty and production concerns.
As the prices work lower during the winter months, producers should look to use options as a way to re-own cash sales for a summer rally. The weekly export sales report showed net sales of 327,300 metric ton for delivery in 2009/10 were down 10 percent from the previous week and 67 percent from the prior four-week average.
Strategy and outlook: Producers should have hedges up to the 70 percent level. Producers will want to use price weakness to re-own cash sales with futures and options on a price correction. 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. When prices move above last spring’s highs of $4.73, producers should look at buying new crop put option protection and add to cash sales.
Soybeans closed the week $.48 lower. As identified last week, the technicals for soybeans are weak and the fundamentals are now a concern as well. Despite strong crush demand, exports have slowed. The NOPA December soybean crush was reported at 164.4 mb, up from 160.3 mb last month and above expectations of 161.1 mb.
Additionally, December NOPA crush was up 22 percent from last year’s 134.8 mb. Crush continues to run at an impressive level given the exceptionally strong soybean meal export program. December crush was at 95 percent of total capacity, well above the 5-year average of 89 percent for December.
The weekly export sales report showed net sales of 754,100 MT for delivery in 2009/10 were up 4 percent from the previous week, but down 17 percent from the prior four-week average.
Strategy and outlook: Producers should have hedges at 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. Producers have sold 2010 crop when November futures traded 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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