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BRIAN HOOPS

By Staff | Jan 11, 2013

Corn: This month’s supply and demand report has the potential to be a major market mover as the USDA will issue the final production forecast for the 2012 crop and update the demand figures.

Export forecasts are nearly 400 million bushels below last year at this time. In addition, ethanol usage is also nearly 500 mb below last year’s figures, giving corn usage a nearly 1.4 billion bushel disadvantage over last year.

Remember this when your neighbor talks about how strong the demand for corn is. Traders are going to look for the USDA to decrease their final 2012 corn production estimate, slowly tightening the balance sheets.

Farmer selling should increase after the first of the year as farmers will need to move some corn to maintain the quality of the stored crop, but basis levels should narrow

through the winter months.

Soybeans: The huge demand base for soybeans, estimated at a record 3.031 bb, comes in the form of strong export demand and a very strong crush figure.

Exports could see a bearish figure in the January supply and demand report after China has canceled some recent U.S. purchases.

Ending stocks are forecast to remain tight at 130 mb. The market has been anticipating a record soybean crop in South America and updates on this year’s production from South America will be a major driving force for prices throughout the winter.

This month’s report has the potential to be a major market mover as the USDA will issue the final production forecast for the 2012 crop and update the demand figures.

Export forecasts are 120 mb below last year at this time and with the cancelations, look for the USDA to loosen the balance sheets slightly by decreasing exports.

Traders are going to look for the USDA to increase the final 2012 soybean production estimate. Farmer selling looks to be at a minimum this winter as producers are more interested in selling corn and holding onto their soybeans in case another weather problem develops in North America this summer and prices move higher.

CORN ANALYSIS

Corn closed the week $.13 3/4 lower. Last week, private exporters did not report any private sales.

In the weekly export sales report, corn sales shows 1.9 mb slated for 2012/13. This is below the 18 mb that is needed to stay on pace with the USDA forecasts of 1.15 bb.

Informa economics is projecting 2013 U.S. corn acreage at 99.3 million acres, up 2.08 million acres from last year.

Informa estimated 2012 U.S. corn yield at 123.3 bushel per acre, up 1 bpa from its prior forecast with production now forecast at 10.8 bb, an increase of 75 mb.

The real fireworks was scheduled for today when the USDA releases its final production figures along with its latest acreage and demand figures.

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.

Producers should look to make cash sales into resistance through the winter with the best chance for a summer rally coming only if drought conditions persist.

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

Re-owned 50 percent of the 2012/13 corn crop with July calls.

SOYBEANS ANALYSIS

Soybeans closed the week $.56 3/4 lower from last week. Last week, China canceled a total of 315,000 metric tons of U.S. soybean purchases while private exporters reported a sale of 140,000 mts of U.S. soybeans sold to an unknown destination.

In the weekly export sales report, soybean sales were 18.2 mb, this is above the 6.9 mb that is needed to stay on pace with the current USDA forecast of 1.345 bb. Last week, Informa economics is estimating 2013 U.S. soybean acreage at 78.96 million acres, a 1.76 million acre increase from 2012.

The increase in acreage is projected to be in the western corn belt.

Informa estimated the 2012 U.S. soybean yield at 40.1 bpa, up .8 bpa gain from USDA. The U.S. 2012 soy crop is estimated by Informa at 3,040 bb, up 69 mb from the USDA’s November forecast.

The consecutive weeks of export cancelations were what we feared would happen this fall if weather was good for growing conditions in South America. The U.S. export profile was heavily front-end loaded.

Technicals are bearish for the soybean market as of right now.

The fundamental picture is also negative with a large South American crop and U.S. exports being canceled.

Today’s USDA report could change both the fundamental picture and the techncials.

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 $13.35.

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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