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BRIAN HOOPS

By Staff | Jul 3, 2013

Despite cries from U. S. producers switching acres from corn to soybeans, the USDA surprised the trade by increasing its corn acreage estimate to 97.38 million acres from its March forecast of 97.28 ma, higher than the highest pre-report trade estimate.

Most traders and analysts believed USDA would reduce acres because of the late-planted spring as farmers switched corn acres to soybeans.

The 97.38 ma estimate is the highest since 1936.

The USDA did recognize the late planting in the main Corn Belt states as they said farmers in Illinois will plant 600,000 acres less than last year; Iowa will plant 200,000 acres less than last year and Minnesota farmers will plant 50,000 fewer acres than last year.

To make up for this, USDA estimated record corn acreage in Arizona, Nevada, North Dakota and Oregon.

USDA expects farmers to harvest 89.1 ma of what they planted to corn. USDA estimated the average corn yield at 156.5 bushels per acres in the supply and demand report released June 12. This puts production figures easily over 14.005 billion bushels.

Old crop corn stocks came in at 2.76 bb from March’s estimate, indicating a disappearance of 2.64 bb compared to a 2.88 bb disappearance in the same quarter last year.

For soybeans, the USDA said farmers will plant 77.73 ma, a record high, and expected to harvest 76.9 ma.

Area planted increased 1 percent from 2012 with planted acreage increasing in 18 of 31 soybean growing states.

Record acreage is expected in New York, Pennsylvania and South Dakota.

Soybean stocks, projected at 435 million bushels, is the lowest since June 2004 and the third smallest stockpile going back to the 1975-76 marketing year.

With stocks at 435 mb, USDA indicated disappearance of 564 million bushels, a 20 percent decline from the same quarter last year. It’s the tightest quarterly stocks figure since soybean demand climbed above 3 bb in 2006-07.

All wheat acres increased 1 percent from last year to 56.53 ma. Of the 56.53 ma, winter wheat was planted on 42.7 ma, spring wheat on 12.3 ma and durum wheat on 1.54 ma.

Of the spring wheat total, 11.7 ma will be planted to hard red spring wheat. Durum acres are down 28 percent from last year.

North Dakota will plant 850,000 acres, a 37 percent decline from last year making it North Dakota’s third smallest crop on record.

Wheat ending stocks declined more than the traders anticipated, coming in at 718 mb compared to the lowest trade guess of 732 mb.

March-to-May disappearance totaled 516 mb, up 13 percent from the same period last year. Bottom line on the report is bearish acreage figures for corn and soybeans, while old crop stocks are bullish.

We have a tale of two entirely different crops.

Last year’s crops were hurt by drought and reduced yields as a result, providing a tight stocks situation for farmers.

However, this year is entirely different. Record large planted acreage combined with large production figures will produce, if realized, record large corn and soybean crops this

year, weighing on prices until the next yield-robbing event occurs.

CORN ANALYSIS

Corn closed the week $.17 1/2 higher. Last week, private exporters did not announce any private sales.

In the weekly export sales report, new crop corn sales were only 6 mb, clearly, foreign buyers are not concerned about getting forward coverage of corn ahead of harvest.

Last week, the crop progress for U.S. corn condition advances only 1 percent to 65 percent good-to-excellent last week (68 percent is the average) versus last year’s 56 percent rating which declined 7 percent from the prior week.

Conditions look to improve again as warmer temperatures improve the crop. Without the threat of a major weather problem, seasonal highs, which are normally in by June 23, are already in place.

The USDA’s projection of a 14.005 bb crop looks to push harvest lows to below $4.25. Demand will look to improve as we get closer to harvest as foreign buyers will try to time the harvest lows to gain forward coverage.

Strategy and outlook: Producers are now 100 percent sold of 2012/13 crop and are also 50 percent sold of the 2013/14 crop.

Producers own December corn puts on 50 percent of 2013 production.

SOYBEANS ANALYSIS

Soybeans closed the week $.71 1/4 higher from last week. Last week, private exporters reported a sale of 172,500 metric tons of U.S. soybeans to an unknown destination.

In the weekly export sales report, new sales were decent at 16.6 mb.

The weekly crop progress report showed soybean planting advanced only 7 percent to 92 percent planted (at the low end of expectations) versus 95 percent average suggesting

2.3 ma late planted beans of the 5.7 ma total unplanted.

The U.S. soybean crop condition, like corn, climbed 1 percent to 65 percent g-to-e (64 percent is the average) versus the 53 percent reported last year which declined 3 percent from the prior week.

The soybean crop was in need of sunshine and warmer temperatures during June to establish its root system, which is exactly what occurred. This is the reason why November soybeans have removed a dollar of weather premium from prices during that timeframe.

Normal weather during July will push prices lower as a huge, record large crop is anticipated. Seasonal highs are normally in by June 23 and unless weather turns adverse, highs are in place.

Strategy and outlook: Producers are 100 percent sold of the 2012/13 production and are 40 percent sold of 2013/14. Sell 10 percent at $13.45 against the January contract.

Producers own November puts on 50 percent of 2013 production.

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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