Published: May 20, 2008 05:20 pm            

Grain Outlook: Beans, corn trends look higher

Originally published in the May 16, 2008, print edition.

The following market analysis is for the week ending May 9.

SOYBEANS — Soybeans traded sideways until the U.S. Department of Agriculture released the first peek at the 2008-09 balance sheet on May 9 and we surged higher.

The report was bullish with ending stocks for the 2007-08 crop dropping 15 million bushels (all from increasing the export forecast) to 145 million bushels. The much anticipated and biggest report surprise, was the 2008-09 balance sheet indicating ending stocks of only 185 million bushels when the trade had been expecting 270 million bushels.

The USDA is using a 42.1 bushels per acre yield for 2008-09 to reach a 3.105 billion bushel crop. The new crop stocks-to-use ratio is 6.1 percent. The national average farm price is pegged at $10 for this year and $10.50 to $12 for next year.

News from Argentina was neutral. Farmers resumed their strike, but grain flow has not been disrupted as much as when the strike first began in early March. Truck traffic to export facilities has been interrupted, but domestic flow has gone unchallenged.

The possibility that some of the bean sales currently on U.S. books could eventually be switched back to Argentina remains.

The U.S. dollar index ended the week slightly lower, but it did trade at eight-week highs versus the euro at one point during the week. When the U.S. dollar was showing good gains, we were expecting energies (crude oil specifically) to trade lower. This didn’t happen and shakes the dollar-commodity relationship that has been touted for months.

When the dollar is lower and commodities gain, it’s the dollar that is credited. When the dollar is higher and commodities gain, heads begin to wobble and eyes to roll as we look for answers. Investors just want to own commodities for the time being, period. The strength in outside markets does spill over to agriculture and must be watched.

A few grain companies rolled their bean bids earlier than normal to the November and August this week. In the process, basis levels dropped from a few cents to 20 cents lower depending on the location. This usually occurs when basis levels roll to another month, but I would expect we will see local levels recover with growers in the fields and available quantities questionable.

Weekly soybean export sales at 1.5 million bushels were a low for this marketing year. Using the new export projection for this year, sales commitments stand at 97 percent.

OUTLOOK: July beans traded a 95 1/4-cent range this week, gaining 53 1/2 cents from the previous Friday. November beans were up 85 1/4 cents and traded a range of $1.03 on the week.

Money flow is turning back to commodities once again as the U.S. dollar struggles and today’s numbers were friendly. Trend is higher.

CORN — Corn started out the week with significant losses, but was able to climb higher as the week progressed and weather again became uncertain. The July corn contract traded a range of 55 cents for the week, closing 15 3/4 cents higher. The December contract had a range of 53 1/4 cents and close 20 1/2 cents higher for the week.

The July 2009 corn contract set the new all-time corn high at $6.79. Weather was the overall driver with forecasts still looking cool and moist until May 20.

The USDA 2007-08 balance sheet cut the ethanol line by 100 million bushels, thereby increasing the carryout by 100 million to 1.383 billion bushels. The 2008-09 table used a 153.9 bu./acre yield to compute a 12.125 billion bushel crop. Feed usage-residual next year is forecast to drop 850 million bushels from this year, ethanol usage up 1 billion bushels to 4 billion bushels, and exports down 400 million bushels.

Carryout for 2008-09 is predicted to fall to 763 million bushels by Aug. 31, 2009. The average national farm price for this year was left unchanged at $4.10 to $4.40 with 2008-09 coming in at $5 to $6.

The ending stocks-to-use ratio falls from 10.6 percent this year to 6 percent next year.

Weekly exports were a marketing year low at 13.3 million bushels, but total sales commitments are 89 percent of the USDA forecast.

OUTLOOK: Planting weather is still a major focus, but the crop is getting in the ground. Beans may now be taking the lead. Watch hourly forecasts and the financial sector for direction, but the trend as of now is still higher.

Nystrom notes: The June crude oil contract soared to another all-time high of $126.27 this week. Heating oil and gasoline also set highs at $3.6524 and $3.2038 respectively.

Phyllis Nystrom is a market analyst with Country Hedging in St. Paul.

        

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