Reports May Fuel further Gains, with Corn Leading

January 10, 2011 07:01 PM

Corn, soybean, and wheat futures all may get a boost from USDA reports to be released the morning of Jan. 12, but the corn market is most likely to lead prices higher after the reports. 

Rich Nelson, director of research at Allendale, Inc., McHenry, Ill., expects the main focus of Wednesday's reports will be U.S. ending corn stocks. Allendale projects stocks will end this marketing year at 756 million bushels, down from last month's USDA projection of 832 million.
“If we hit our number, we're looking for $6.50 on the nearby futures, for March contracts,” says Nelson. He expects corn futures to lead price gains into planting, as acreage prospects shape up. “Our estimates imply a good deal of corn will get planted this spring,” he says. “As far as what the market needs, we think at least 3 million additional acres of corn.” That would take corn plantings up to 91.222 million acres, but Nelson adds that Allendale won't release its acreage estimates until Jan. 21.
Wednesday morning, USDA will issue its Agricultural Supply and Demand Estimates, quarterly Grain Stocks report, January Crop Production report, and Annual Crop Production report.
“I think people are generally expecting less production and more demand for corn, soybeans and wheat,” says Ryan Turner, risk management consultant at FCStone, LLC, Kansas City.
A Dow Jones Newswires survey showed that analysts expect corn stocks to dwindle by the end of August to about 778 million bushels, compared with last month's USDA estimate of 832 million and last year's 1.708 billion. On average, analysts think soybean carryover will slip to 158 million bushels from 165 million last year. They peg wheat carryover at 842 million bushels, off from 858 million last year.
“If you get those numbers, they probably just solidify the current trend, which is higher,” says Turner. The corn stocks-to-use ratio is headed toward less than 6%. “In my opinion, the corn market has a job to do,” says Turner. “Go high enough to make people stop using it. We can't encourage enough supply. Even if we go to $8 corn, I don't think we can get enough acres to satisfy what is being demanded now.” Higher prices likely will cut first into exports, then feed, and finally ethanol. At Jan. 7 prices, ethanol plants could spend another 40 cents per bushel and produce slightly positive margins, says Turner.
The Dec. 1, 2010, inventories of corn could be the big surprise for traders from the Grain Stocks report, says Nelson. Last year's grain stocks reports surprised traders with increases and decreases from the prior year because of variability in feed and residual use. Allendale expects this season's ethanol demand for corn will be 100 million bushels more than the 4.8 billion bushels in USDA's December projections.
Winter wheat acreage likely is up by 4.6 million acres after two year of decline, says Nelson, but the big question for wheat is the effect of dryness when the crop went dormant last fall. “In terms of yield drag, I suggest winter wheat yields may be 4 bu. below average now,” says Nelson.
Only 47% of the winter wheat crop was rated good to excellent last fall, but that can change quickly. A lot of major wheat areas are dry, but one or two good rains can change that. “The winter wheat crop is made in the spring,” says Turner.

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Spell Check

1/11/2011 09:47 AM

  $6 corn here we come. Guys get ready to buy the livestock operations for cents on the dollar again.​

1/11/2011 12:29 PM

  we need 7.00 corn two keep up with the cost of growing it


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