Focus on Corn Demand: On Jan. 12, USDA will release four separate reports that typically have good market impact. The first one is the Annual Summary of 2008 crop production. USDA goes through and revises planted and harvested acreage, yield and the resulting production level. In the past 10 years it has brought anywhere from a 210 million bushel reduction to an 80 million bushel increase from December numbers. USDA will take these updated production numbers and plug them into the monthly supply/demand report. We do not look for major revisions of last year's production.
South American Soybeans Are Not Fixed: but they can get by for a few days. Argentina forecasts have changed forecast precip amounts and where they will hit. The key issue is some rain will come and help in the short term. There is still a net drying pattern in the big picture. Most of Brazil is doing okay and even portions of the south have been helped. That sounds like it would limit the soybean futures. However, looking ahead to Monday's reports we see they might not be too bad. We do not expect much of a revision to 2008 production. USDA will then look at the September to November usage numbers to determine how demand is acting. We know soybean crush levels will be weak but that is not new. The Grain Stocks report should confirm however, that exports were red hot. We will be reminding that sales to China are great and as long as South America is a production question, the United States may get an extra sale or two that would be scheduled for South America. Short-term bulls are running the show. The technicals are showing a clear up trend. The long-term picture is not looking good. A jump in 2009 acres could certainly push 2009/10 ending stocks to above 400 million bushels from the 205 million forecast for 2008/09.
Wheat Holds On: in the face of a higher U.S. dollar. Bears will still argue a higher dollar makes it harder to export what is already the most expensive wheat in the world. Having voiced those concerns, the general perception is the short-term picture is still supportive. There is the idea that while the United States will not pick up much of those big pending purchases around the world, we could still get some extra business. Just today, Jordan threw out a tender for another 100,000 bushels. The trade also hears about how much production will decline into 2009. For Monday's reports, 2008 production may not be changed much. The Quarterly Stocks Report may indicate September to November demand was about as expected. Essentially the report may be neutral. Short term this market is bullish. Long term the huge carryover left from 2008/09 will offset any drop in 2009 production. In the big picture, wheat is likely a range bound trade.
Rich Nelson is the director of research at Allendale Inc. in McHenry, IL. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.
