E Hedger Closing Grain Commentary 1/25/10

Published on: 17:11PM Jan 25, 2010
Market Settlement Change Low High 
March corn 367 3/4 3    365.25 369.25
March wheat 498 1/4 - 1/4 496.25 504
March soybeans 940 1/2 -11    935.25 956
March soymeal 283.00 -3.40 282 287.8
March soyoil 36.50 -0.21 36.23 36.99
Feb live cattle 86.2 -0.425 85.90 86.80
Feb lean hogs 68.375 -1.47 68.30 69.575
Soybeans and wheat closed lower and corn closed higher on the day. The soybean market remained weak throughout the day. An improved outlook for Argentina has many increasing their production outlooks there. If South America does finish the growing season in good condition, we should record production in both Argentina and Brazil. There are also some 5 million additional acres that could be put towards corn and soybean production in the U.S. next spring. This outlook has many traders rolling out of long positions and looking to build short ones. Also, input prices have come down significantly in the past 6 months and this is encouraging producers to lock in corn and soybeans prices for 2010. This combination of factors will have producers and traders looking for rallies to sell as we head into the spring. 
Soybean prices have the most downside risk in my opinion. Good South American production and a surge in available U.S. acres next spring could push ending stocks to multi-year highs next year. Strong Chinese demand and the worst Argentine drought in 100 years have kept soybean prices strong for the past 12-months. Chinese demand remains strong and the U.S. remains the only global provider of those soybeans for now. However, Brazil has already started their harvest and by March South America will be taking a significant amount of business from the U.S. Although we will likely continue to sell some soybeans well into the summer, it could feel as if our demand has been completely shut-off. With normal growing conditions here in the U.S., we could see our carryout increase to over 400 million bushels for the ’10-11 crop year. 
Corn too has a lot of downside risk. A better than anticipated U.S. crop and the expectation for millions of additional acres in the U.S. next spring should continue to weigh on prices. Input prices have come down significantly for corn this year. With 2010 cash corn prices around $3.80 in many high producing areas, we should see corn acres increase substantially. Some analysts are estimating a 3-4 million acre increase currently. It is too early to know at this time, but at current prices I would tend to agree with this estimate. A big factor will obviously be the planting weather. Many areas were unable to get all of the fall work done. This will put increased stress on this spring. A dry spring could lead to a lot of additional acres and a wet spring could shift the majority of additional acres towards soybeans. Demand looks to be improving for corn especially in the ethanol sector. This is true both in the U.S. and in South America. A strong sugar market could start to ration sugar ethanol demand there. If corn prices continue to decline, we could see more corn going towards ethanol. This won’t happen for some time (if it ever does), but it does have some potential. For now, look for corn prices to weaken as we head into the spring. 
Even with U.S. wheat acres at 97-year lows, the wheat outlook remains bearish. With the old crop carryover approaching 1 billion bushels, it will take more than a 6 million acre decrease in wheat acres to turn this market higher. Global supplies remain huge and U.S. wheat demand remains weak. Without a crop problem this spring, wheat prices should remain tempered and closely linked to corn prices. However, with such a dramatic decrease in acres this year the weather this spring will be closely monitored. SRW acres are down the most of all classes. If we did see poor growing conditions this spring in these areas, we could see some interesting things happen in this class of wheat. For years now, basis levels have been nothing short of pathetic. This should change in 2010. The CFTC has made some important changes to the SRW contract that should help create convergence between the futures and cash prices. This combined with a sharp reduction in acres could make SRW basis levels actually become strong in the next 12-months! I am not going to make any promises though!

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