Grain Outlook: $13 to $15 November beans?

June 20, 2008 03:07 am

— The following market analysis is for the week ending June 6.
SOYBEANS — Wetter weather than expected, demand and outside markets took the reins this week, propelling beans to highs not seen since March. July beans soared to $14.88, closing up 94 cents on the week; November beans were 85 cents higher on the week.
Basis levels were stronger on increasing demand for both soybeans and soymeal. Thanks to a surge higher in Brazilian bean basis values, exploding 50 to 60 cents higher this week, U.S. beans are competitive for Chinese business.
The strike by Argentine farmers has not been resolved and business is being directed to the United States or Brazil. The Argentine government is pointing the finger at farmers, accusing the “rich” farmers of preventing truckers and others from earning a living. Road blockades are now being established.
Export capacity off the Pacific Northwest is thought to be almost full through July, which may push new business to the Gulf. While Argentine stocks will eventually have to hit the market, many are loath to count them as “extra” since we are not sure what the United States will be able to produce this year.
It is also questionable whether we will see the needed soybean acreage increases in South America this fall to prompt an increase in U.S. ending stocks from 2007-08 to 2008-09. Early trade ideas are that U.S. 2007-08 stocks will decline by 11 million bushels from the last U.S. Department of Agriculture report to 134 million and 2008-09 stocks to drop 5 million to 181 million bushels.
Crude traded a huge range this week from $121.61 to a new record $139.12. Early in the week, the dollar index surged to three-week highs versus the yen as we began a new month, but reversed mid-week when Europe indicated they may raise their interest rates this year. This rollercoaster did influence the action in the soy complex and grains.
Export sales were within expectations at nearly 11 million bushels with 8.3 million headed to China. New crop sales were 10.4 million bushels with China accounting for 5.9 million bushels. More impressive were the soymeal exports at 264,000 metric tons versus 100,000 to 125,000 mt estimated.
With increasing demand, U.S. ending stocks are anticipated to be cut 10 million to 15 million bushels on the June 10 USDA report. If this occurs, ending stocks may slip to 130 million bushels which would result in the smallest stocks-to-use ratio since 1966.
OUTLOOK: Uncertainty over what conditions the rest of the crop will go in the ground and what effect that will have on yields plus the South America situation will dictate the short run direction. The range of price projections increases with the extreme swings that we’ve recently experienced.
The bean crop was only 69 percent planted as of June 1 versus 81 percent complete on average, with little work expected to get done this week. About 32 percent of the crop had emerged versus 55 percent on average.
There is no clear resolution to what the Commodity Futures Trading Commission actually has in mind besides adding new reporting requirements. If, how, and when any reclassification for index funds occurs is unknown, but they did state that there is no one individual or entity manipulating the crude oil market.
While it may seem extreme, I’ll peg the range for November beans from $13 to $15 — for now.
CORN — Corn began the week on a lower note as the weather looked more conducive to crop development, but wetter forecasts and a reversal in the U.S. dollar back to the weaker side, pushed corn to new contract highs.
The July contract hit $6.63 1/4 and December corn $6.90 1/2. The new record high for any corn contract was set in the July 2009 contract at $7.15 3/4. For the week, July corn was 51 1/2 cents higher and December gained 51 1/4 cents.
How many corn acres will have to be replanted or switched to beans will be an unanswered question for another couple of weeks. A new acreage number will not be updated until the June 30 report, but yield estimates are anticipated to drop.
Corn was 95 percent planted as of June 1 versus an average 98 percent with 74 percent emerged versus an average of 89 percent emerged. The first crop condition report of the year was issued at 63 percent good/excellent versus 78 percent last year at this time.
Early trade indications are looking for old crop corn stocks to increase on the June 10 report to 1.424 billion bushels versus 1.383 billion on the last report. The average guess for new crop carryout is 736 million bushels versus the May 763 million bushel estimate.
A major seed company this week pledged to develop seeds that will double yields for the three major row crops (corn, soybeans and cotton) by 2030.
Two U.S. senators introduced a bill this week to reduce the ethanol import subsidy and decrease it again if blending subsidies are lowered. It proposes to decrease the import subsidy from 54 cents per gallon to 45 cents per gallon. Ethanol margins have gone into negative territory with corn prices outpacing gasoline prices and demand.
Nearby board margins did indicate a comeback late in the week from negative 30 cents to a negative 16 cents per gallon.
Export sales this week were just under 21 million bushels for old crop and 6.7 million bushels for new crop. Total sales for this year are 2.3 billion bushels and for next year 125.5 million bushels.
Broiler egg-sets were 98.8 percent of last year and chick placements were 97.5 percent, indicating reduced feed demand.
OUTLOOK: As long as forecasts are wet, we’ll be heading higher; but when the weather clears and heat moves in, the emotional tide could reverse quickly. The next resistance level in December corn is $7, then $7.50 with support at $6.55, then $6.
Nystrom’s notes: Crude traded a $17.51 range this week, hitting a record $139.12 per barrel. Crude oil and products posted their largest one day moves ever on June 6. As of this writing, crude oil had been up $11.33, heating oil up $0.3117 and gasoline up $0.2305. The next USDA monthly supply-demand report will be June 10 and the June acreage report will be released June 30.
A pilot program beginning June 16 will be implemented where the front five Chicago wheat contracts will be settled versus the electronic close.

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