Corn and beans — Where we go from here

Corn and beans — Where we go from here

This past Tuesday the United States Department of Agriculture (USDA) tightened up both the corn and soybean supply situations, providing underlying support for corn and soybean prices. The USDA cut the U.S. corn yield to 154.3 from October’s 155.8 bushels per acre projection and the corn crop size by 124 million bushels to 12.540 billion bushels, which was in line with the market consensus. The USDA cut corn ending stocks to 827 million bushels from October’s 902 million bushels, which is now less than half of the USDA’s early spring estimates for ending stocks of 1.8 billion bushels. The ending stock figure has plunged since spring because of strong demand and a smaller crop than originally expected caused by the hot summer. The U.S. stocks/use ratio is now at 6.2%, the tightest since 5.0% in 1995/96 and less than half the levels seen in the past five years. The global corn stocks/use ratio is 15.4%, which is the second tightest in the past three decades.

Since the USDA report, corn prices have trickled lower on long liquidation pressure after the very sharp 4-1/2 month rally. The tight corn situation should continue to support most of the rally going forward. However, the corn market has likely received all its bullish catalysts for the year and therefore speculators may continue to bail out in coming weeks. Moreover, high corn prices and reduced demand from sectors such as exports, which have already been slow recently, may discourage new investors. We therefore look for some corrective price action in corn over the near-term.

Regarding soybeans, the USDA report was a bullish surprise and soybean prices pushed to new highs to extend the bull market. The USDA cut the soybean yield to 43.9 from 44.4 bushels per acre, which compared with the consensus for an increase in the yield to 44.6 bushels per acre. The yield cut caused a decline in the crop size to 3.375 billion bushels from October’s 3.408 billion bushels. Chinese buying likely caused the USDA to revise exports higher by 50 million bushels, boosting overall usage. The USDA cut ending stocks to 185 million bushels from October’s 265 million bushels. The stocks/use ratio fell to 5.5% from 8.4% in October where it is at the fourth tightest level in the past several decades. The tight corn and soybean situations and high prices will set up some tough competition for planting acreage this coming spring.

Please keep in mind that Friday’s announcement from China with regards to raising rates, coupled with the stronger U.S. dollar caused extensive chart damage to all of the hard commodities. We could see drops next week on solid profit taking.

Proceed to Page 2 for the latest COT data...

COT data

The COT charts below show the commercials still net short soybeans at 177,843 contracts and corn net short at 363,613 contracts. Large profit taking in the COT would signal the end of this long term uptrend. This past week we did not see that, so keep an eye on this Friday’s report.

Commercial Net Tracker instructions
This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A. If the current value is at a 12-month low, the cell will display a red/burgundy background. B. If the current value is at a 12-month high, the cell will display a green background. C. If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D. If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

Proceed to Page 3 for this week's detailed fundementals charts...