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April supply and demand

By Staff | Apr 16, 2010

In the April supply/demand report, the U.S.Department of Agriculture did not reveal any new surprises to the market.

Typically, this report is a quiet report as it comes on the heels of the March 31 quarterly stocks and acreage report and just in front of the May supply/demand report. The May supply/demand report will be the first report of the year in which the USDA will make projections of the 2010 corn, soybeans and wheat crops.

In the April report, the USDA forecast U.S. soybean exports to hit a record 1.445 billion bushels this marketing year while the corn surplus rises to 1.899 billion bushels. The corn ending stocks figure would be the largest in four years. The strong U.S. export demand through Marchis projected to carry U.S. soybean exports to a record 1.445 billion bushels, 13 percent above the previous record set in 2008/09.

It was the eighth month in a row USDA boosted the forecast.

Ending stocks are forecast at 190 million bushels, a three-week supply, leaving U.S. supplies tight.

Due to U.S. livestock feeders using less corn than expected, the USDA increased ending stocks to 1.899 billion bushels, up 100 million bushels from a month ago.

In a surprise, the USDA indicated better wheat exports and feed use, which will cut the wheat surplus, now forecast at 950 million bushels. While stocks were lowered, ending stocks are still up 45 percent from one year ago and remain the largest in a decade.

In world supplies, the USDA increased production estimates of soybean crops from Brazil and Argentina, the world’s No. 2 and No. 3 producers, but said strong demand from China will help consume the bumper crops. Soybean production in No. 2 producer Brazil was projected at 67.5 million tons, up 0.5 million tons, and Argentine soy production was raised 1 million tons from last month to 54 million tons.

The USDA is forecasting South American soybeans to compete against U.S. soy exports for the rest of the marketing year as their harvest advances, however, the USDA still raised its export forecast for the United States.

China, the top soy importer, was forecast to buy 43.5 million tons of soybeans this year, up from 41.1 million tons last year, and 2.3 percent above last month’s estimate, the USDA said. Brazilian exports were raised 2.7 percent from last month to 26.3million tons, but exports from Argentina were unchanged from last month at 7 million tons.

The USDA also raised Brazil’s corn production by 2.5 million tones from last month to 53.5 million tons because of good yields.

Corn analysis

Corn closed the week $.01 1/4 higher. China’s state-run and private trading companies are seeking to import up to 1.0 million metric tons corn to ensure cheaper supply in south China, traders familiar with the situation said Thursday. While it makes sense to import cheaper corn from the international market to supply the southern region, it is still unclear if the government is open to the idea of large-scale imports which will drive down domestic prices and hit farm incomes in major corn growing areas in the country. But one of the state-run Chinese grain trading companies has taken long positions on the Chicago Board of Trade even though the company is still seeking import licenses from the government, a trading executive said. The USDA announced a private sale of 114,300 tons of U.S. corn to Mexico last week.

The weekly export sales report showed net sales of 1.357 million tons for delivery in 2009/10 were up 64 percent from the previous week and up noticeably from the prior four-week average.

Increases were reported for South Korea (616,800 tons, including 111,700 tones switched from unknown destinations and decreases of 9,700 tons), Japan (280,600 tons, including 93,200 tons switched from unknown destinations and decreases of 9,400 tons), Mexico (167,400 tons), Egypt (120,000 tons) and Guatemala (55,900 tons). This year’s export profile is now at 1.4125 billion bushels versus the USDA forecast of 1.9 bb.

Strategy and outlook: Producers should be 100 percent sold in cash/hedges. Producers should have purchased July options on a pullback into a support level on a portion of their 2009 production. 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 cashsales.

Soybean analysis

Soybeans closed the week $.10 1/4 higher from last week. Celeres raised its soy production forecast for Brazil to 67.2 million tons, up from the 65.7 mtons it projected in March. The crop has been 75 percent harvested, compared to 61 percent

at this point last year. March exports were 16 percent higher than last year at over 3 mtons. Celeres expects the faster shipment pace to continue through April and May. Brazil’s 2009-10 soy crop is expected to be 67.3 million tons, the agricultural survey group of the country’s census bureau, the IBGE, said Wednesday. The previous estimate was 66.9 million tons. The National Commodities Supply Corp., or Conab, meanwhile estimated the 2009-10 soy crop at 67.4 million tons on Wednesday. Conab said Brazil produced 57 million tons in 2008-09.

IBGE said the weather has been favorable in the main soy producing regions. Brazil is the world’s No. 2 soy producer and exporter, behind the U.S. There were no private soybean sales last week.

The weekly export sales report showed net sales of 205,700 tons for delivery in 2009/10 were up 15 percent from the previous week and 50 percent from the prior four-week average. Increases reported for Mexico (89,300 tons), Japan (45,200 tons), Morocco (30,600 tons, including 11,000 tons switched from unknown destinations), Indonesia (13,200 tons), and Colombia (7,500 tons), were partially offset by decreases for Ireland (3,300 tons). This year’s export profile remains well ahead of last year’s record pace at 1.3442 billion bushels versus the USDA forecast of 1.445 billion bushels.

Strategy and outlook: Producers should be 100 percent sold in cash/hedges. Producers should have purchased July options on a pullback into a support level to re-own a portion of their 2009 production. 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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