On June 10, the USDA released its monthly supply/demand report. The report held a bullish surprise for the corn market as the USDA reported corn ending stocks well below pre-report expectations.
The USDA raised 2009/10 corn for ethanol usage by 150 million bushels to 4.55 billion bushels. This could be a temporary boost for corn producers as the USDA may have given a hint that it intends to decrease feed usage in the quarterly stocks report on June 30. While the USDA increased ethanol usage, it also decreased feed usage by 25 mb. This was only the second time in the last 30 years the USDA has revised its feed usage estimate in the June supply/demand report.
The end result was a 135 mb decrease in ending stocks to 1.603 bb compared to the pre-report estimates of 1.724 bb. For the 2010/11 marketing year, the USDA left yield and production estimates unchanged from last month.
However, the USDA did increase ethanol usage for the new crop marketing year by 100 mb to 4.7 bb. Exports were unchanged at 2.0 bb and total demand increased by 110 mb from last month to 13.410 bb. This is much higher than a year ago when demand was 13.190 bb.
2010/11 U.S. corn ending stocks were lowered by 245 mb from last month to a more manageable 1.573 bb. The USDA is using an average yield of 163.5 bushels per acre, which could be raised considerably by next month if growing conditions remain beneficial.
Looking at two similar years, 1996 and 2003, when ending stocks were cut similar amounts in the June report, the markets failed to follow through with any bullish momentum. In 1996, prices worked sideways until a rally in early July developed, only to have prices plunge by harvest as good growing conditions overtook the bullish supply figure.
In 2003, prices worked lower until August, when adverse weather finally rallied the corn market.
The only change in the old crop and new crop soybean balance sheets was a 5 mb increase in 2009/10 crush to 1.74 billion. This pushed old crop ending stocks to 185 million and was in line with market expectations.
With no changes being made to the 2010/11 balance sheet, new crop ending stocks also tightened slowly by 5 mb to 360 mb.
Corn closed the week $.09 1/2 higher. Last week’s crop progress report showed national good-to-excellent ratings were 76 percent, unchanged from a week ago, however excellent conditions improved 3 percent. Iowa is rated 78 percent g/e, Nebraska 85 percent, Minnesota 92 percent, Illinois 70 percent and Indiana at 70 percent. Only 5 percent of the crop is rated either poor-to-very poor. Last year’s ratings were 69 percent g/e and only 6 percent p/vp. The big question is can ratings hold these levels during the growing season?
Last week, the USDA confirmed China had purchased another three cargos of U.S. corn. The weekly export sales report showed net sales of 1.018 million metric tons for delivery in 2009/10 were up noticeably from the previous week and 20 percent from the prior four-week average.
Increases reported for Japan (310,200 metric tons, including 127,300 MT, switched from unknown destinations and decreases of 4,700 MT), South Korea (267,600 MT). Net sales of 143,500 MT for delivery in 2010/11 were mainly for unknown destinations (85,400 MT) and South Korea (58,000 MT).
This year’s export profile is now at 1.8 bb versus the USDA forecast of 1.95 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.
The next sales objectives for corn producers is between $3.80 and $4. Producers should look at buying new crop put option protection and at this level.
Soybeans closed the week $.11 1/4 higher from last week. Last week, the USDA reported China had purchased 240,000 mt of U.S. soybeans for the 2010/11 marketing year and China purchased 80,000 mt of U.S. soybean oil. The USDA reported 84 percent of the 2010 soybean crop has been seeded, ahead of last year’s pace of 76 percent pace and in line with the five-year average pace of 84 percent seeded. Iowa is 95 percent completed, with Illinois at 82 percent, Indiana 81 percent, Nebraska at 94 percent and Minnesota at 98 percent finished.
The first crop ratings of the season were also released with the USDA reporting record high rating of 75 percent g/e.
The weekly export sales report showed net sales of 420,600 MT for delivery in 2009/10 were up noticeably from the previous week and 60 percent from the prior four-week average. Increases were reported for Japan (336,000 MT), Indonesia (79,000 MT, including 65,000 MT switched from unknown destinations and decreases of 500 MT), Mexico (34,000 MT), Costa Rica (11,100 MT, including 10,100 MT switched from Guatemala), and the Philippines (7,900 MT). Decreases were reported for unknown destinations (46,000 MT) and Guatemala (10,100 MT). Net sales of 130,000 MT for delivery in 2010/11 were for unknown destinations (70,000 MT) and China (60,000 MT).
This year’s export profile remains well ahead of last year’s record pace at 1.428 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. The next sales objectives for producers is $9.45 to $9.62. Producers should look at buying new crop put option protection at this 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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