Published: November 06, 2008 04:14 pm            

Grain Outlook: Lots of surprises left in markets

Originally published in the Nov. 7, 2008, print edition.

The following market analysis is for the week ending Oct. 31.

CORN — The market showed us this week that there are a lot of surprises left in the ol’ girl.

After starting the week out on a soft note Monday, the U.S. Department of Agriculture announced they would make some corrections to the October crop report on Tuesday rather than wait for the Nov. 10 crop report. This caught everyone off guard.

They cited computer errors in the compilation of the data from sources that submit data for the monthly reports. Did the timing have anything to do with how insurance compensation is figured? Very possibly — payments are based on the comparison of February and October prices. Whatever the reason, the correction included a 1.0-million-acre cut in corn acreage for 2008-09.

They also revised the yield estimate from 154.0 bushels per acre to 153.9 bu./acre, which put total production at 12.033 billion bushels, down 167 million bushels from the October report. And if that wasn’t enough, they lowered both the feed and export lines by 50 million bushels each.

The overall result was a drop in ending stocks of 66 million bushels to 1.088 billion bushels. The new national on-farm price range was increased a nickel to $4.25 to $5.25. Even though in the big picture this wasn’t much of a change, prices found support.

Adding to the more positive outlook was the plummeting U.S. dollar index, which pushed corn to trade limit higher. It experienced its largest one-day drop in 23 years mid-week when the Federal Reserve cut the benchmark interest rate by 0.5 percent to 1.0 percent.

But in the “it’s never easy” category, the U.S. dollar reversed directions at the end of the week. Japan lowered their interest rate from 0.5 percent to 0.3 percent. The dollar index was down just shy of a full point for the week at midday Friday.

Export sales of 16.2 million bushels were disappointing since we are in the middle of harvest. We continue to lag 40 percent behind last year’s number even though exports are only forecast to be down 20 percent from last year. Tens of thousands of chickens have been slaughtered in China due to the melamine debacle. Tainted eggs have caused illness in China, Korea and Hong Kong. There has also been talk this week of feed wheat out of the Black Sea working into the United States.

Rumors about the uncertainty of a major U.S. ethanol producer and a leading poultry producer’s financial status also acted as a barrier to corn strength. The U.S. third quarter gross domestic product was lower for the first time since 2001, coming in at a negative 0.3 percent.

Harvest progress is picking up steam with warmer temps and drier conditions. Corn harvest was 39 percent complete as of Oct. 26 versus the average of 66 percent. It’s expected to be 50 to 55 percent done as of Nov. 2. Yields continue to be reported better than expected which may lead to a larger carryout number on the Nov. 10 USDA monthly report.

OUTLOOK: Demand for corn has not been stellar with lots of competition for business — what minimal business there is — possible problems in the ethanol sector, and lots of harvest ahead, it’s hard to get bullish right now. We can expect some bounces along the way, but the market has not sent a decisive signal yet that we are ready to have a sustained rally. December corn for the week was up 28 3/4 cents, but was down 86 cents for the month.

SOYBEANS — The USDA correction on the soybean side included a 1.1 million acre drop in acreage for a 45 million bushels production decrease to 2.938 billion bushels. In the usage section, exports were decreased 30 million bushels, which put ending stocks at 205 million bushels versus 220 million on the October report. The average national farm price estimate was raised a dime to $9.70 to $11.20. This didn’t raise as many eyebrows since the big acreage increase on the October report was suspect.

Export sales were better than expected at 51.1 million bushels, due mainly to 29 million purchased by China. This does beg the question, is the majority of that business now behind us? They have been quiet this week. This did jump our pace up 14 percent over last year when total exports are predicted to be down around 13 percent from last year.

Harvest is beginning to wind down as corn harvest takes over. Bean harvest was 76 percent complete as of Oct. 26 versus the 83 percent average.

OUTLOOK: With harvest basically in the rearview mirror, we may expect bean basis to firm as bin doors slam shut. If export demand stays quiet, prices may trend sideways until the November crop report.

The “but” to this is what may happen in the financial arena. My crystal ball is a little cloudy on the subject, so stay tuned to global happenings for day-to-day direction. We’ll look for grain rallies to be led by soybeans. January soybeans were up 66 cents for the week and down $1.29 1/4 for October.

Nystrom’s notes: Prices for the week: crude oil up $3.66, heating oil up 11.4 cents, gasoline up 4.6 cents and natural gas up 27.8 cents.

        

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