Bullish Argument Lost? In the past month, corn prices have had their eye on soybeans. With falling South American production and strong China purchases of US beans, corn prices have been dragged higher to get those needed new crop acres. If the bull has been taken out of soybeans, then where does that leave corn? The current corn fundamentals are: large old crop ending stocks, crude oil breaking (ethanol prices remaining low), and the bullish new crop situation dwindling. For price direction we had been noting March corn was overpriced and was a better value down at 365. That number is lower now. For trading, we will avoid futures for the short term and instead work on a synthetic short using options.
No Need to Buy Acres: For two months we have been scratching our heads wondering how we would find the acres needed to fulfill demand side of the 2009/10 balance sheet. There was a clear need for more corn acres and farmers had no intention of planting them. That concern has been alleviated in two ways:
In the past two months USDA has raised 08/09 ending stocks from 1.124 billion bushels to 1.790. That, almost 700 million bushel increase, gives a large cushion for next year!
In addition, winter wheat will drop by 4 million, which makes more acres available for will corn or soybeans. In fact, once you figure -4.0 ww, +.1 spng w, -.5 cotton, -.5 other small grains, and -.750 CRP the total increase available to corn or soybeans is now 5.65 million! What is our forecast acreage mix and price projections for 2009? Get a seat at the conference and find out!.
Soybeans: Though USDA did up their estimate of demand this month, they added more in the form of a production increase. The other issue is with freed up ground from winter wheat it is certain soybeans will see more acres in 2009. Soybeans have been rallying on the drop of production from South America and strong buying pace from China. On the South America issue let’s assume there is potential for another 3 million metric tonne drop in production. In our terms, that equates to a large 110 million bushels. However, now on the balance sheet we see 08/09 ending stocks at 225 million bushels going to the 400 - 600 zone for 09/10. That more than offsets any further drops in South American production.
Good News With No Effect: Why didn't the trade react positively to today's 4 million acre winter wheat decline? Heck, all areas dropped in plantings... south -1.733, the cornbelt -1.640, plains -.500, west and east combined were -.310 million. That should be a big deal. Doing the math: 4 million planted winter wheat acres x normal harvested of 81% x 46 bushel yield = 149 million bushels. That will be more than offset by the stocks left over from this year, which will be 350 million bushels larger. There will not be a shortage of wheat. We have sold all cash wheat and will shift to a neutral to bearish trading mindset.
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.
