Corn in March: In March, we should expect traders to anticipate an increase in planted acreage in the March 31 report of one to three million acres. A heavy snow cap over the Midwest combined with forecasts for a cool, wet spring will make planting additional corn acres difficult, thus corn should find strength in the last half of March and early April as the market will need to secure acres to meet record demand.
Commercial interests will view pullbacks in the market as buying opportunities with forecasts for a cool, wet spring could give way to flooding across the Midwest key growing regions during the heart of the growing season.
Thus commercial entities as well as large speculators will want to be long ahead of the growing season. With the already saturated soils and additional rain forecasted this spring, a drought is very unlikely this summer.
Highs for corn are likely to be scored during the spring planting timeframe or very early summer as values rally to secure enough planted acres to meet demand.
As price levels rise, producers should be offsetting price risk by making cash sales and using options to manage the risk. Note, during the month of March, the USDA will release an update of the final 2009 production figures as it has resurveyed a portion of the growing season that was unharvested last fall.
Soybeans in March: The key pod setting stage in South America should be completed by March 15, leaving the market to remove any weather premium that may remain in values. The next monthly USDA supply/demand report will be released on March 12. The USDA report should show very little change in U.S. ending stocks and with the South American growing season effectively over as well as an expectation for an increase in U.S. seeded acres in 2010, look for prices to work lower after the report.
In the March 31 acreage report, the trade should be expecting an increase in U.S. soybean seeding of 500,000 to 1 million acres. If wet growing conditions materialize this spring as forecast, corn will rally to buy acres as the market anticipate farmers will shift corn acres to
A very wet forecast will like the upside for soybeans. As with corn, technical breaks should be well-supported by commercial entities as they begin to position long ahead of the growing season as they wish to extend coverage in case prices rally sharply on a weather related event.
Corn closed the week $.18 higher. Commercial buying and some fund short-covering allowed corn to close the week essentially higher. The market is starting to anticipate a delayed start to the planting season.
Limiting the upside potential for corn is a large amount of old crop corn that has quality issues. Export business was quiet this week with no private sales reported by the USDA. Commercials continue to provide support to the market as they are buying back their shorts and are now using price weakness as an opportunity to extend coverage into the summer months, which always brings uncertainty and production concerns.
The weekly export sales report showed net sales of 401,300 metric tons for delivery in 2009/10 were down 59 percent from the previous week and 55 percent from the prior four-week average. This year’s export profile is now at 1.230 billion bushels.
Strategy and outlook: Producers should have hedges/cash sales up to the 70 percent level. Producers will want to use price weakness to reown cash sales with futures and options on a price correction. Buy July options on a pullback into a support 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 $.06 higher from last week. Commercial buying and late week short-covering allowed soybeans to close the week higher. The Census Bureau reported that January soybean crush totalled 167.2 million bushels, down from last month’s 173.1 million, and below expectations of 170.2 million. While crush declined from last month, it was still up 15 percent from last year’s 145.2 million and was record large for the month of January, surpassing the former January record of 160.5 million, set in 2008.
The USDA announced a private export sale of 113,000 MT to China last week. The weekly export sales report showed net sales of 239,100 MT for delivery in 2009/10, up 17 percent from the previous week, but down 39 percent from the prior four-week average.
This year’s export profile remains well ahead of last year’s record pace at 1.312 bb. Commercials are at their most bullish position since the rally began in March of 2009.
Look for major commercial support to limit the downside in soybeans to the $8.92 chart support.
Strategy and outlook: Producers should have hedges/cash sales 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.
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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