Published: August 13, 2008 04:53 pm            

Grain Outlook: Corn and beans ‘crash and burn’

Originally published in the August 15, 2008, print edition.

The following market analysis for the week ending Aug. 8.

CORN — “Crash and burn” has a certain ring to it when talking about the corn and bean markets this week. December corn plummeted 66 3/4 cents this week as funds stayed on task to liquidate long positions, buyers went to the sidelines, the U.S. dollar rallied and weather problems were isolated.

There were reports mid-week that a fund was forced to liquidate 39,000 corn contracts and 40,000 bean contracts. It was unclear whether this was due to the inability to meet margins, a reclassification from hedge fund to large speculator, or some other factor. December corn is now $2.81 off its high set on June 27 at $7.99 1/4.

Informa Economics released their crop estimates this week, pegging the U.S. corn yield at 155.4 bushels per acre, a crop of 12.330 billion bushels and an estimated carryout of 1.42 billion bushels for the 2008-09 crop year. Country Hedging is estimating the corn yield at 155.4 bu./acre and the crop at 12.43 billion bushels. In July, the U.S. Department of Agriculture was showing 148.4 bu./acre and 11.715 billion bushels. The trade estimates for corn: average yield 152.53 bu./acre, range of guesses 149.5 to 155.42 bu./acre; average production 11.986 billion bushels; average carryout for 2008-09 1.004 billion bushels.

The U.S. dollar rallied to five-month highs against other currencies this week. It jumped a whopping 2.34 points this week and was up over 4 percent against the euro. A couple of schools of thought on this phenomenon: 1) the dollar rallied due to the money exodus from crude oil and other commodities; 2) crude oil fell because the dollar rallied on attention to slower rates of economic growth.

This linking of financials and commodities should put to rest any doubt that we’re in a global economy. The Environmental Protection Agency announced that they will not grant the request from Texas for a waiver of the Renewable Fuels Standard mandate. Texas had wanted to reduce by half the amount of ethanol required to be blended in gasoline this year, citing ethanol as the culprit for high feed costs in the state.

The U.S. Climate Prediction Center this week said that the signals for El Niño are neutral through the fall. While weather forecasts are a moving target, this may reduce the perceived chance for an early frost this year.

Export sales rebounded this week to 13.3 million bushels versus 2.5 million last week. Total sales commitments at 2.4 billion bushels are right on the last USDA projection. New crop sales continue at a good clip at 28.3 million bushels, bringing that total to 266 million bushels or 13 percent of the current forecast. China raised their corn production estimate from 154 million metric tons to 156 mmt, and compared to the USDA’s last figure of 153 mmt.

OUTLOOK: Weather and fund liquidation continue to be the headliners in the corn market. Support in the December contract comes in first at $4.95 1/2, but levels closer to $4.80 or less are possible if the USDA numbers warrant it; resistance is at $5.25 to $5.30. Hope everyone is ready to play the “frost or no frost” game next.

SOYBEANS — Funds bailing out of long positions set the stage for the lower week, and non-threatening weather provided the actors for the play. The skyrocketing U.S. dollar added to the negative momentum of grains. November beans lost $1.84 1/2 this week and are down $4.56 1/4 since their contract high of $16.36 3/4 on July 3.

Informa Economics released their crop updates this week which pegged the U.S. soybean yield at 42 bu./acre and a crop size of 3.054 billion bushels. This brings their 2008-09 carryout to 177 million bushels. In July, the USDA was using 41.6 bu./acre and 3.0 billion bushels for the 2008-09 crop year, with carryout at 140 million bushels. Country Hedging’s survey indicated a yield of 43.8 bu./acre and a crop of 2.9 billion bushels.

For soybeans, the average trade yield estimate is 41.671 bu./acre, range 40.7 to 43.85 bu./acre; average production 3.001 billion bushels; average carryout for 2008-09 141 million bushels. Informa reduced their expectation for an acreage increase in Brazil this year from 7 percent down to just a 2 percent increase. They are predicting a 4.5 percent rise in Argentine soybean acres this year.

Export sales were good this week at 13.7 million bushels. The total sales commitment stands at 1.16 billion bushels versus the USDA estimate of 1.145 billion bushels. New crop sales were at 9 million bushels.

Argentine farmers will meet with the government next week to address the possibility of lowering taxes on small and medium sized farms.

China increased their soybean crop estimate to 17.5 mmt from 16.5 mmt. The USDA is forecasting a crop of 16.0 mmt. There have been rumors that China is inquiring about washing out of some soybean purchases due to poor crushing margins; however, no cancellations have been confirmed.

OUTLOOK: With the funds selling this week and buyers on the sidelines, the downtrend remains intact. A push to $11 may be in the cards if the USDA report provides incentive to stay short. We’re already a quarter of the way through the critical August weather timeframe and we haven’t threatened the crop yet. The weather window is already beginning to close.

Nystrom’s notes: The USDA report will be released on Aug. 12. The U.S. dollar index soared 2.34 points this week, to levels not seen since February. In energies, crude oil was down $9.85 for the week and off $32.02 from the all-time high of $147.27, a loss from the high of almost 22 percent.

        

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