Published: November 26, 2008 03:38 pm            

Grain Outlook: Drop in on-farm price forecast

Originally published in the Nov. 21, 2008, print edition.

The following market analysis is for the week ending Nov. 14.

CORN — We began the week with the November U.S. Department of Agriculture supply-demand report.

The report was neutral to bearish on the carryout numbers. The yield was lowered to 153.8 bushels per acre versus last month’s 153.9 bu./acre estimate. Minnesota’s corn yield was increased 1 bu./acre to 168 bu./acre.

This put the 2008-09 crop forecast at 12.020 billion bushels, down 13 million bushels from last month. Ending stocks climbed 36 million bushels from the previous report with exports cut 50 million bushels.

The average national on-farm price forecast dropped and narrowed to a range of $4 to $4.80. On the world balance sheet, ending stocks jumped from 105.6 million metric tons to 110.1 mmt and as compared to 126.5 mmt last year.

December corn traded in a relatively narrow range this week, from $3.601/4 to $3.90, on limited agricultural news. It settled out the week up 4 3/4 cents.

Overall, the corn report was uneventful and outside markets continued to exert heavy influence on the agricultural sector’s direction. China announced a $586 billion stimulus package that gave a temporary lift to the market, but sputtered out quickly.

The U.S. dollar index was only up 0.45 points this week. Europe officially entered a recession with both the second and third quarters showing gross domestic product contracting 0.2 percent. Taiwan bought a cargo of corn from Brazil this week at roughly $10 per ton cheaper than U.S. origin.

China also dropped their corn export tax this week. While Chinese corn remains approximately $1 above the United States, it sets in place a situation that makes it easier for China to export corn in the future. China released a report stating they intend to produce more than 95 percent of their grain needs by 2020. China reported that their industrial growth fell to 8.2 percent in October versus 11.4 percent growth the previous month. This was the weakest number since 2001.

Pencils are busily scratching figures to determine if feed wheat will work into the United States from the United Kingdom. Broiler egg sets were down 11 percent from a year ago and chick placements down 7 percent.

What is happening in the ethanol sector also makes corn demand questionable. Are there bushels that growers “thought” they had sold at higher prices going to hit the market at a later date? This drives home the poor demand picture for U.S. corn. Adding salt to the wound, weekly export sales were only 14 million bushels, kicking total export commitments to 43 percent below last year at this time. We need almost 29 million bushels per week to reach the USDA forecast of 1.9 billion bushels.

OUTLOOK: In general, corn demand is poor, yield estimates are expected to increase, and U.S. corn is not competitive in the world arena. An impetus for a significant, decisive recovery will most likely have to come from an outside source.

December corn did trade under the $3.75 support, but did not build on that negativity. I’ll leave first support at $3.75, second support at $3.50. Resistance is $4.15, then $4.30. Informa Economics was scheduled to release updated acreage numbers late Friday afternoon, after this writing.

SOYBEANS — The Nov. 10 crop report was construed as neutral to slightly negative with ending stocks pegged at 205 million bushels, unchanged from last month, but about 10 million bushels above the pre-report estimate. The yield estimate went from 39.5 bu./acre in October to 39.3 bu./acre this month.

Minnesota’s bean yield fell 1 bu./acre to 39 bu./acre. Production fell 17 million bushels to 2.921 billion bushels as the crush category was lowered 15 million bushels and residual cut 3 million bushels.

World ending stocks came in at 54.1 million metric tons from 54.3 mmt last month and 53.0 mmt last year. Brazil’s soybean crop projection was slashed from 62.5 mmt to 60.0 mmt, which was in line with guesses. Demand was steady this week with China adding to recent purchases. Weekly U.S. export sales were on the low end of expectations at 17.6 million bushels.

We need to average 10.5 million bushels per week to achieve the USDA 1.02 billion bushel export projection. China’s total soybean imports in October were 2.1 mmt, a 48 percent drop from the record imports in September. The October National Oilseed Processors Association crush was versus expectations for 141 million bushels and 120.4 million in September. The January soybean contract traded a range of $8.72 3/4 to $9.54 1/4, closing the week down 25 cents.

OUTLOOK: Demand for beans has been the best of the grains, but it is yet to be seen whether we are seeing export demand front end loaded. I would estimate a nearby price range of $8.50 to $9.75.

Nystrom’s notes: Crude fell $4 this week while heating oil was down 14 1/2 cents and gasoline was down 11 cents. The Dow was down 446 points for the week as of this writing. OPEC will meet Nov. 29 to discuss additional crude oil production cuts.

        

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