June 26, 2006

 

Corn market bullish but soy looks set to fall

 

 

Although corn prices lost 25 cents from early June to mid-June, many analysts are predicting a bullish market for corn.

 

On the Chicago Board of Trade, corn closed on June 15 with July corn at $2.33; September at $2.44 1/2; December at $2.58 1/2; March 2007 at $2.69 1/2; and May at $2.76 1/2.

 

Compared with prices at the beginning of June, the contracts were down 26 cents on the nearby and 25 cents for the 2007 contracts.

 

Prices are dropping because at least one forecast indicates farmers planted 3 million more acres of corn than originally expected.

 

USDA's March 31, 2006 forecast indicated that growers would plant 78 million acres to corn in 2006, down about 5 percent from 2005 plantings. Three million extra acres would almost bring the acreage up to 2005 planting levels.

 

Traders were also looking at weather patterns. The weather appeared favourable for good pollination in July, meaning an 11 billion bushel crop if nothing goes wrong.

 

If corn supplies are strong, demand may also be stronger.

 

USDA expects 60 million bushels to be exported, higher than originally expected.

 

Ethanol production is also moving ahead quickly and using significant amounts of corn.

 

With great demand for corn, the greatest burden for the US corn farmer is the 2005 corn stocks.

 

The 2005 crop is still a great concern  as  the basis simply cannot seem to improve, said Betsy Jensen, Northland Community & Technical College agricultural commodity instructor.

 

Corn prices across the region on Jun 15 ranged from $1.62 with a basis of minus 75 cents, to $1.82 and a basis of minus 52 cents.

 

The problem with basis is there is nothing you can do with it other than store corn, said Jensen. Farmers who have no storage room would have to take whatever price the elevator offers, Jansen said. 

 

Right now, the market is anticipating more corn.

 

Despite that rosy picture, the corn market has the potential to move higher, Jensen suggested.

 

While the corn market looks bullish,  soy is doing badly, said Jensen, adding that soybean prices have been artificially high all winter.

 

On the Chicago Board of Trade on June 15, soy closed with July at $5.92 1/2, August at $5.99 1/2, September at $6.06 1/2, November at $6.20 1/2, January 2007 at $6.30 1/2 and March 2007 at $6.37 1/2.

 

Compared with prices in early June 2006, the prices on June 15 were 15.5 cents lower on the nearby, 14.5 cents lower for August and September, 12.5 cents lower for November, 11.5 cents lower for January and 9.25 cents lower for March 2007.

 

Still, US soy enjoyed good export sales.

 

The June 15 weekly export sales report indicated 438,700 tonnes (16.1 million bushels) of US soy sold, compared to trade forecasts of 100,000 to 300,000 tonnes.

 

USDA indicated that US soybean export sales have reached 98 percent of the forecast for the 2006 marketing year.

 

The good news for soy is that when corn acres are up by 3 million acres, it usually means soy acres are dropping by about that same amount.

 

Even after taking that into account, soy is still at a burdensome level, said Jensen.. It's difficult to find anything bullish in soy now, she added.

 

The volatility of soy over the past few years can be unpredictable. It has sold from well over US$7 in the summer, and farmers have still collected LDPs in the fall. Thus selling into a bullish weather market is important, because soy fundamentals are not very positive, Jansen said.

 

The local basis numbers for soy remained wide in mid-June. Soybean cash prices across the region varied from $4.94 with a basis of 96 cents under to $5.33 with a basis of 57 cents under, according to the Toolshed Ag Information Network.