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BRIAN HOOPS

By Staff | Jun 4, 2010

CORN

Last month was slightly bearish for corn as it closed the month 7 1/4 cents lower. During June, the outlook for prices is simple as weather and how it impacts the emerging crops will be 95 percent of the pricing movement. The only other supply side news the market will deal with, is the June 11 USDA monthly supply/demand crop report.

Last month’s report put the ending stocks estimate for the 2010/1 crop at 1.8 billion bushels. This was a mildly bullish surprise to the market as this ending stocks figure was well below trade estimates. This ending stocks figure, will put a solid floor underneath prices until an above-trend line yield can be confirmed.

Since the May report was a slightly bullish surprise, anticipate some buying ahead of the report release on the morning of June 11. The market will want to be bullish as the key pollination time period is directly ahead of the market, however, it will take weather concerns during June to ignite a rally.

Producers will want to use options as a way to manage risk and provide price insurance. This will enable producers to make sales and cover the upside if weather is adverse. The end of the month will also have the quarterly stocks and planting intentions report from the USDA. This report could be a shocker to the market as some reports have farmers decreasing seeded acres from the last report in March due to some farmer replanting in the Midwest.

Seasonal highs are usually formed by June 23.

SOYBEANS

Last month was bearish as soybeans closed 51 3/4 cents lower. The month of June looks to be similar to corn as we are in a weather market and weather forecasts will be the primary driving force. The early soybean seeding pace started fast, but has slowed recently.

Normally, there should be approximately 25 percent to 30 percent of the crop yet to be seeded. The crop looks to be seeded before June 15 leaving beans to spend the rest of June developing its root system. Rains after June 15 will be viewed as beneficial to crop development and negative for prices.

However, dryness in the month of June will send prices sharply higher. Demand has remained strong for U.S. beans as the soybean crops in Argentina and Brazil have been harvested and the unsold portion will be sold. Since the soybeans are now in storage, China has returned as a strong buyer of U.S. soybeans.

This strong buying has cut into old crop ending stocks leaving U.S. stocks at only 190 million bushels, according to the May USDA report. For new crop, the USDA forecasted ending stocks at a more comfortable 365 mb. Like the corn market, producers should use options as a risk management tool and price insurance.

The month of June is not the key reproductive month for soybeans, however, the market will be quick to add a premium into prices on less than ideal weather. The acreage report at the end of the month could be a shocker to the trade. The market has already anticipated larger seeded acres than 2009, however if producers planted more acres to corn than previously thought due to a record fast corn planting pace, prices could find strength after the report’s release.

Corn analysis

Corn closed the week $.10 lower. Last week’s crop progress report showed national good to excellent ratings were 71 percent, up 4 percent from a week ago with Iowa at 65 percent good-to-excellent, Nebraska 77 percent, Minnesota 87 percent, Illinois 77 percent and Indiana at 68 percent. Only 5 percent of the crop is rated either poor or very poor. Last year’s ratings were 70 percent g/e and only 4 percent poor-to-very poor.

The weekly export sales report showed net sales of 1.03 million metric tons for delivery in 2009/10 were down 24 percent from the previous week and 22 percent from the prior four-week average.

This was the third consecutive week of sales over 1 million metric tons. Increases were reported for Japan (354,900 MT, including 98,100 MT switched from unknown destinations and decreases of 14,500 MT), China (241,000 MT, including

58,000 MT switched from unknown destinations), Mexico (75,300 MT), unknown destinations (73,800 MT), South Korea (67,800 MT, including 55,000 MT switched from Japan), Saudi Arabia (59,100 MT, switched from South Korea), and Venezuela (34,200 MT, including 6,500 MT switched from Panama). This year’s export profile is now at 1.757 bb versus the USDA forecast of 1.950 bb.

Strategy and outlook: Producers should be 100 percent sold in cash/hedges for the 2009 crop. 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 is the 50 percent retracement level of this last down move.

Soybean analysis

Soybeans closed the week $.13 1/4 lower from last week. The April Census crush report was reported at 136.5 mb below expectations of 138.2 mb and well below last month’s 156.1 mb. The was the first month with the monthly crush below the previous year’s figures. The USDA reported 53 percent of the 2010 soybean crop has been seeded, ahead of last year’s pace of 44 percent pace, but behind the five-year average pace of 57 percent seeded. Iowa is 75 percent completed, with Illinois at 47 percent, Indiana 50 percent, Nebraska at 63 percent and Minnesota at 81 percent finished.

The weekly export sales report showed net sales of 175,400 MT for delivery in 2009/10 were down 63 percent from the previous week and 38 percent from the prior four-week average. Increases were reported for China (60,000 MT), unknown destinations (40,400 MT), Malaysia (25,200 MT, including 24,500 MT switched from unknown destinations),

Japan (18,400 MT, including 9,000 MT switched from unknown destinations and decreases of 4,800 MT), and Mexico (10,400 MT). Decreases were reported for Guatemala (6,000 MT). Net sales of 120,000 MT for delivery in 2010/11 were for China.

Exports of 144,500 MT were down 47 percent from the previous week and 44 percent from the prior four-week average. This year’s export profile remains well ahead of last year’s record pace at 1.407 bb versus. the USDA forecast of 1.455 bb.

Strategy and outlook: Producers should be 100 percent sold in cash/hedges in the 2009 crop. 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 at the $9.87 level.

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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