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BRIAN HOOPS

By Staff | Apr 9, 2010

The month of March, was a bearish month for corn as corn lost 44 cents from the previous month’s close. In the prospective plantings report, the USDA estimated U.S. producers would increase 2010 corn by 2.298 million from last year to 88.798 million acres.

This will be the second largest seeded acres estimate in history, trailing only the year 1946. With the lower input values of corn, the profitability of corn will encourage additional acres of corn to be seeded this spring, providing a wet spring would prevent additional plantings.

Like the month of March, April will have commercial and seasonal traders buying weakness for a potential summer weather rally as the record large demand base will have end users very nervous about weather and this year’s growing season.

U.S. producers will begin to seeding corn acres by mid-April and weather will become very important to pricing by May. If the month of April is wet and hampers producers planting efforts, look for December corn to rally in an effort to entice producers to plant corn later, rather than switch acres to soybeans.

Currently, the U.S. is experiencing a pattern of hot and dry weather, however this weather pattern is forecast to change to a cool and wet pattern the last week of April.

Bearish beans

The month of March was bearish for soybeans as futures closed 20 cents lower in March compared to February.

In the prospective plantings report, the USDA estimated U.S. producers will need to plant 598,000 more acres in 2010. Producers do not appear willing to increase seedings more than this as profitability of soybeans versus corn favors corn at this time. The quarterly stock report and world ending stocks ensure the world has an adequate supply of soybeans and the market is not signaling to producers to increase seeded acres in 2010.

In the month of April, the soybean market has one simple job, to rebound and compete again with corn this spring so it does not lose any acres. In the acreage report, the USDA estimated the 2010 soybean acres at 78.098 million.

This acreage forecast is the largest in history. In April, soybeans should find support from an effort to return to profitability to encourage farmers to not switch from corn to soybeans. Also, a planting season that is slowed by heavy rains, will encourage farmers to switch plantings of corn over to soybeans, therefore look for soybeans to maintain their premium to corn to ensure adequate supplies of soybean stocks.

Corn analysis

Corn closed the week $.11 3/4 lower. USDA reported March 1 U.S. corn stocks at 7.694 billion bushels, sharply above the average trade estimate of 7.505 billion bushels and compares to last year’s 6.954 billion.

Stocks at that level implied 2nd quarter U.S. corn feed/residual usage of 1.462 billion bushels, down 7.5 percent from last year, following the 1st quarter reflection of a 4 percent increase from last year.

Whether that is a result of an adjustment in the 1st quarter number, as it has felt high to us all along, or an actual reflection of lower feed usage doesn’t really matter. The bottom line is the USDA reflected 189 million bushels of corn in the U.S. balance sheet that the market previously was not anticipating.

Combined 1st and 2nd quarter feed/residual usage is now calculated down 1 percent from last year.

Last week, the USDA reported two private corn sales. Egypt purchased 120,000 metric tons of corn from the U.S. and South Korea purchased 281,000 MT of corn from the U.S., as well. The weekly export sales report showed net sales of 826,100 MT for delivery in 2009/10 were up 36 percent from the previous week and 35 percent from the prior four-week average.

Increases were reported for Japan (323,000 mt, including 87,700 MT switched from unknown destinations and decreases of 1,800 MT), South Korea (171,300 MT, including 57,800 MT switched from unknown destinations and decreases of 2,300 MT), Mexico (104,600 MT), Venezuela (95,300 MT), Taiwan (59,300 MT), Egypt (50,600 MT), and Lebanon (40,800 MT, including 21,000 MT switched from Egypt and 19,000 MT from Syria.

This year’s export profile is now at 1.36 billion bushels versus the USDA forecast of 1.9 bb.

Strategy and outlook: Producers should have hedges/cash sales up to the 70 percent level. Producers should have purchased 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.

Next sales objectives for corn producers are 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.

Soybean analysis

Soybeans closed the week $.10 lower from last week. USDA reported March 1 U.S. soybean stocks at 1.270 billion bushels, sharply above the average trade estimate of 1.207 billion and compared to year ago stocks of 1.302 billion.

As we look into the March 1 stocks number, it must be kept in mind that Dec. 1 stocks came in solidly below expectations by 74 million bushels. March 1 stocks of 1.27 billion bushels implied a 2nd quarter residual of -35 million bushels.

Only one other time in history has seen a negative 2nd quarter residual and that was just -1 million bushels in 1988/89.

The 2nd quarter residual has been very consistently in a 40-80 million bushel range for the most part over the last 10 years. USDA essentially is saying they “found” around 75-plus million bushels of soybeans that were previously unaccounted for in the Dec 1 stocks figure.

The weekly export sales report showed net sales of 178,500 MT for delivery in 2009/10 were down 35 percent from the previous week, but up 29 percent from the prior four-week average. Increases reported for China (66,500 MT), South Korea (57,700 MT, including 55,000 mt switched from unknown destinations), Japan (43,400 MT), Mexico (35,900 MT), Malaysia (25,600 MT, including 24,000 mt switched from unknown destinations), and Syria (23,900 MT), switched from unknown destinations.

This year’s export profile remains well ahead of last year’s record pace at 1.336 bb versus the USDA forecast of 1.420 bb.

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.

Producers should have purchased July options on a pullback into a support level. Producers have sold 2010 crop when November futures traded above $10.30 and should wait patiently for a rally to make new sales and purchase put 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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