February looks to be a positive month for the corn market. With the bullish January supply/demand report fresh in the minds of traders, the market will search for price discovery and a price level which will slow usage.
Demand isn’t strong, ethanol production is slowing and cattle supplies are the lowest since 1952, but the market is still worried that usage is better than what has been factored in.
Ending stocks are estimated at 602 million bushels versus 989 mb last year. With another bullish report in February, ending stocks could tighten even further.
Last year, U.S. corn growers planted 96.4 million acres. Corn producers are expected to plant 2 to 3 million more acres in 2013 compared to 2012, as the higher prices will attract more corn acres this spring.
Weather this spring will be so important to the growing season. It won’t matter how many acres are planted if it doesn’t rain. Producers should look to buy the weakness in the last half of February for a rally into the spring and possibly the summer if weather conditions remain dry.
Normally, February looks to bring the addition of slower U.S. export sales as early planted beans in Northern Brazil begin to come to harvest and hit the world market at a price lower than any U.S. posted price.
Because Brazil can only store up to 25 percent of its harvest, it is forced to forward sell approximately 75 percent of its early harvested soybeans.
It is the period between mid-February and May that South America over takes the U.S. as the primary port of origin for beans. This will leave weather on late-maturing crops as the sole bullish factor for South American soybean values.
February in Brazil and Argentina is like August here as it’s a key yield-developing month for three quarters of the crop. If weather turns hot and dry, prices will rally sharply. However, with good rains across the country, the price of soybeans should turn south. Producers should buy on major pullbacks in the market.
The USDA supply/demand report was slightly friendly in January as the USDA lowered estimated ending stocks to 135 mb, a historically tight figure. Ahead of the February USDA supply/demand report, traders will anticipate the USDA to leave ending stocks unchanged due to the record strong demand pace for soybeans.
The soybean markets main job is to not lose acres to other crops this spring. Therefore, if corn rallies, soybeans should as well. U.S. producers are expected to plant an additional 500,000 to 1 million acres of soybeans this spring.
Corn closed the week $.15 1/4 higher. Last week, private exporters did not report any private sales.
In the weekly export sales report, corn sales shows 10.0 mb slated for 2012/13. This is below the 13.3 mb that
is needed to stay on pace with the USDA forecasts of 950 mb. Corn continues its climb post the monthly
USDA supply/demand report with gains coming in the front months. I would expect this pattern to continue,
with strength in the old crop coming from tighter than expected ending stocks and fund short-covering, while
weakness will be seen in the new crop contracts as the trade is anticipating an increase in planted acres for
2013. The market shouldn’t experience any sharp rallies as export demand remains weak overall until spring
when weather becomes a major pricing influence.
Strategy and outlook: Producers are now 80 percent of 2012/13 crop and are also 40 percent sold of the 2013/14 crop.
They should re-own 50 percent of the 2012/13 corn crop with July calls.
Soybeans closed the week $.33 1/4 higher from last week. Last week, private exporters announced three sales totaling 615,000 metric tons of soybeans to China.
In the weekly export sales report, soybean sales were 46 mb. This is above the 4.1 mb that is needed to stay on pace with the current USDA forecast of 1.345 billion bushels.
Private sales of soybeans to China is currently lifting soybean futures as early harvest in South America is revealing a slightly smaller-than-expected soybean crop.
Also, shipping soybeans out of South America has become a major problem as soybeans are shipped directly from the combine and not stored.
This has created a backlog of nearly 45 days to move soybeans from the harvested areas to the shipping ports.
China has returned as a U.S. soybean buyer with the intent to shift these purchases from new crop to old crop if the delays continue.
Strategy and outlook: Producers are 80 percent sold of the 2012/13 production and are 40 percent sold of 2013/14. They should re-own 50 percent of 2012/13 production with July soybean calls if July futures hit $13.75.
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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