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BRIAN HOOPS

By Staff | Nov 30, 2012

CORN

The November USDA supply/demand report estimated the corn crop at 10.725 billion bushels, this was up slightly from the October estimate of 10.7 bb.

Despite the drought, this was still the third largest production figure in history. Carryover stocks at the start of next year’s harvest were estimated at only 647 million bushels. By comparison, last year at this time, the USDA forecasted corn ending stocks at 988 mb.

Usage remains at a 11.167 bb, down 1.5 bb from last year. While total usage is good, export demand is painfully slow. Exports are only forecast at 1.15 bb compared to 1.543 bb a year ago.

The USDA supply/demand report on Dec. 9 looks to lend little direction to prices, with no production adjustment and the USDA likely to lower demand forecasts by 15 to 25 mb. Fund buying is the most bullish driving force for prices with very little farmer hedge pressure until after the first of the year.

SOYBEANS

The November USDA supply/demand report estimated the soybean crop at 2.97 billion bushels, 111 mb larger than last month’s crop and one of the largest production figures in history. Carryover stocks at the start of next year’s harvest are estimated at only 140 mb, 10 mb larger compared to last month and 29 mb less than a year ago.

Demand remains strong, led by record exports of soybeans, mostly to China. Total demand is forecast at 3.021 bb with exports at 1.345 bb compared to 1.362 bb a year ago. Production looks to fall behind demand this year, but that could change quickly if U.S. producers cut back on soybean production in 2012.

Brazil and Argentina currently are planting their crops under wet weather conditions and at a near record pace. Note, Brazil and Argentina store little to no excess grain, as storage elevators are absent from the countryside, not like here in the U.S. Grain goes from field to port, which means they need to forward contract, or pre-sell their crop before it’s harvested to ensure it doesn’t pile up on the farm.

This means South America will post their price for beans under any U.S. price to ensure they capture the export business, as there is nowhere to store it.

From the start of the U.S. harvest in October until South American soybean harvest in March, the big demand window for U.S. soybeans as South American supplies are unavailable and the U.S. is the only port of origin for the world’s needs.

China remains the world’s largest importer of soybeans as their growing economy demands high protein and oil contents. The USDA supply/demand report on Dec. 9 looks to lend little direction to prices, with no production adjustment and the USDA likely to raise export forecasts by 5 to 10 mb as weekly export sales remain strong.

CORN ANALYSIS

Corn closed the week $.18 1/2 higher. Last week, private exporters did not report any private sales.

In the weekly export sales report, corn sales shows 30.3 mb slated for 2012/13. This is above the 16.9 mb that is needed to stay on pace with the USDA forecasts of 1.15 bb.

Corn looks to remain in a trading range as supply issues are well known by now and the demand puzzle moves to the front of pricing. The lack of exportable corn demand looks to cap rallies, while the downside should be limited with lack of supply due to the summer drought keeping the basis tight in most regions.

Corn looks to be carving out a downside technical support area of $7.10 with upside resistance at $7.65.

Strategy and outlook: Producers are now 80 percent sold of 2012/13 crop and are also 40 percent sold of the 2013/14 crop.

Re-own 50 percent of the 2012/13 corn crop with July calls if futures touch $7.12.

SOYBEANS ANALYSIS

Soybeans closed the week $.35 1/2 higher from last week. Last week private exporters reported 120,000 metric tons of U.S. soybeans sold to China, 20,000 mt of bean oil to China and 76,000 mt of bean oil to an unknown destination.

In the weekly export sales report, soybean sales were 20.9 mb, this is well above the 8.8 mb that is needed to stay on pace with the current USDA forecast of 1.345 bb. Soybeans are finding selling pressure from commodity funds who are watching the bearish technical trends and selling rallies.

The commercials are buying on weakness in anticipation of a hiccup in growing conditions in South America. The trade has pretty well factored in a huge crop in Brazil and Argentina and the market will see a rally in December if weather problems develop.

Prices will need to close above weekly resistance of $15.71 to confirm seasonal lows are in place. This was previous support that was broken and will serve as resistance on rally attempts.

Strategy and outlook: Producers are 80 percent sold of the 2012/13 production and are 40 percent sold of 2013/14.

Re-own 50 percent of 2012/13 production with July soybean calls if futures hit $13.50.

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. He can be contacted at 605-660-1155.

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