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BRIAN HOOPS

By Staff | Dec 17, 2010

The USDA announced its monthly supply/demand report on Friday. This report is historically a non-event as the supply side of the equation is not changed as only demand fundamentals are focused on in this report.

In the January final report, the USDA will give traders their final production figures, which will normally include some major fire works.

In the report, the USDA raised their forecast of 2010/11 U.S. corn end stocks by 5 million bushels to 832 mb, based on a 5 mb increase in imports. The trade was mildly surprised at this as the market had expected stocks to tighten.

The USDA left the average estimated U.S. cash corn price at a record high $4.80 to 5.60 and decided against making any change in U.S. corn use for the production of ethanol.

2010/11 world corn ending stocks were estimated at 130 million metric tons, up slightly more than 800,000 mts from last month.

The USDA reduced its 2010/11 U.S. soybean ending stocks to 165 mb, down 20 mb based on an increase in exports to 1.59 billion bushels. There is strong statistical evidence the USDA is too low on its soybean export estimate.

The USDA left its average soy price at $10.70 to 12.20. The 2010/11 world soybean ending stocks were lowered to 60.12 mmts, down 1.3 mmt from November due to expanded trade and crush. The government did not change their estimate of South American soy crops at 52 mmt for Argentina and 67.5 mmt for Brazil.

It’s likely to early to make any adjustments with South American production with planting just finishing up in Brazil and 65 percent completed in Argentina.

The USDA raised its estimate of 2010/11 U.S. wheat end stocks to 858 mb, a 10 mb increase due to reduced milling demand. US 2010/11 wheat exports held steady at 1.25 bb and the average wheat price range was adjusted higher by 5 cents to $5.30 to 5.70.

Corn analysis

Corn closed the week $.00 3/4 higher. Last week, private exporters reported sales of 294,000 mt of U.S. corn to Mexico and 116,000 mt to an unknown destination.

The weekly export sales report showed net sales of 671,100 mt were down 12 percent from the previous week and unchanged from the prior four-week average. Increases were reported for Taiwan (211,500 mt, including 116,000 mt switched from unknown destinations and 28,100 mt switched from Japan), South Korea (107,500 mt), unknown destinations (102,400 mt), the Dominican Republic (37,200 mt), and Egypt (29,200 mt).

Net sales of 136,400 mt for delivery in 2011/2012 were for Japan (135,100 mt) and South Korea (1,300 mt). This year’s net export profile is now at 927 mb versus the USDA forecast of 1.95 bb.

Strategy and outlook: Given the recent technical weakness, corn may struggle on rallies as funds are not likely to be aggressive buyers until technicals improve. The down side is likely limited as end users should be buyers on weakness.

Producers have sold/hedged a portion of the 2010 crop and re-owned cash sales with call options or bought call options when corn hit $5.26 to re-own 2010 cash sales.

Don’t become too aggressive marketing the 2011 crop until more is known about the 2011 marketing year.

Soybean analysis

Soybeans closed the week $.27 1/4 lower from last week. Last week, private exporters reported sales of 171,000 mts of soybeans to China and a total of 76,000 mts bean oil to an unknown destination.

The weekly export sales report showed net sales of 637,800 mt were down 53 percent from the previous week and 33 percent from the prior four-week average. The primary destinations were China (266,300 mt, including 223,000 mt switched from unknown destinations and decreases of 46,100 mt), Spain (118,300 mt, including 65,000 mt switched from unknown destinations and decreases of 1,700 mt), and Egypt (90,000 mt).

Net sales of 233,000 mt for delivery in 2011/12 were for China (115,000 mt), unknown destinations (70,000 mt), and Japan (48,000 mt).

This year’s export pace stands at 1.227 bb vsersus the USDA forecast of 1.570 bb.

Strategy and outlook: Weather forecasts in South America will be closely watched for price direction. Soybeans have major chart support near $12.00 which will only be broken if Argentina receives major rainfall amounts as that country has been extremely dry.

Major upside potential exists if weather turns hot and dry in Brazil. Producers have sold/hedged a portion of the 2010 crop and re-owned cash sales with call options. Don’t become too aggressive with marketing the 2011 crop until more is known about the 2011 marketing year.

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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