Answers Are On the Way
Markets will look to USDA's March 31 Grain Stocks and Prospective Plantings reports for answers to a number of questions: Will March 1 stocks yield a final 2009 crop size for corn and soybeans that reflects production on unharvested acres in the Jan. 12 report? Will the poor quality and toxicity of the corn crop be reflected in poor feeding and crush efficiency? Did pork producers cut back gilt retention more than suspected? What crop mix will USDA find in its first producer survey of planted acres, including 5.6 million acres of unplanted winter wheat and 1.5 million acres of grain-suitable expiring conservation land?
The Short Term. Implications of the report will be significant to your personal short-term price forecast. Stocks in all positions will reflect six months of usage. They may help explain the large residual soybean number featured in the last report, which suggested there were soybean stocks not counted as they may have been in transit to export channels due to record front-end sales this past fall. If found, stocks may increase and pressure prices.
Corn stocks may be lower because of residual (also missing stocks) still standing in the field or higher usage due to poor feeding and crush quality.
My guess is we'll see higher soybean and corn production numbers but higher usage, implying friendly supply and demand numbers in the April report.
The Hogs and Pigs Report on the 26th may show even lower hog numbers because the 70¢ corn price drop this past month may have been too late. Tight overall meat supplies would give rise to much better feeding profitability as our economy improves, allowing a price-elastic market to discover higher prices.
The Long Term. USDA, the Environmental Protection Agency and, more importantly, the Barack Obama administration recognize the importance of bioenergy. The announcements this past month basically told agriculture that in the long term, if you grow it, we'll use it, while drastically scaling back expectations for cellulosic ethanol.
Strategy. In the short run, we have to deal with the extra 1.1 billion bushels of South American soybeans and the potential for huge U.S. corn and soybean crops. Although the March 31 reports and spring weather will affect my decisions, for now I will look at prices between $4.05 and $4.20 as selling targets or a weekly close below $3.80 as a trigger for December corn because I need to price another 25% of production.
Chart: The MACD Index Suggests Soybeans May Be Bottoming for the Short Term
Jerry Gulke farms in northern Illinois and North Dakota and has a consulting office at the Chicago Board of Trade. Contact him at firstname.lastname@example.org or (312) 896-2080.
Top Producer, March 2010