Many factors influencing corn, soybean markets

The best marketing advice for corn producers who did not price their crops in 2008 is to forget about last year…let bygones be bygones.

“Two-thousand-eight is over — forget about it,” says Cory Walters, University of Kentucky Extension economist. “A lot of people did not price in 2008. Instead, they held it into 2009, hoping it would go back up, but it didn’t go up, so they’re still sitting on 2008 crop. Others sold in 2008. They sold 2008 crop, the sold 2009 and they sold 2010, and they’re sitting pretty good right now.”

Many factors, says Walters, have an impact on the corn market, including energy prices, exports, global supply and oil.

“Right now, crude oil is in the $66 to $77 range,” said Walters during the Southern Region Agricultural Outlook Conference held in Atlanta. “There is nothing telling us in the next six to eight months there will be a run-up or shortage of oil. Also, the dollar has been dropping off, which is good for us.”

No one knows at this point how U.S. energy policy will affect corn production and the markets, he says. “Energy policy is going to happen, and it will affect our fertilizer prices, grain prices and fuel prices — it’s on the horizon,” he says.

Many farmers, says Walters, complain about the role of index funds in the futures market. “Farmers want to know why they are meddling in our business. Maybe we want them meddling in our business, if they’re taking a long position. We want to be there when they sell. They may be speculators, but if they’re there for the long-run, they may not be speculators,” says Walters.

In the USDA’s October report, it slightly increased both corn and soybean production over the September numbers, he says.

The October crop report pegs corn production at 13 billion bushels, about 8 percent more than the 2008-2009 crop. USDA is expecting yields to be a record at 164.2 bushels per acre, up 10.3 bushels per acre over last year and up 2.3 bushels from the September report. For Kentucky, the USDA increased average yield by two bushels per acre from the September estimate for an average yield of 157 bushels per acre. If realized, this would be a record corn yield for Kentucky.

The USDA is expecting an increase in corn use over 2008. All sources of use are expected to increase, thereby increasing total use by 8 percent over 2008. In particular, exports are expected to increase by almost 16 percent over last year. “Increased exports are a reflection of a weakening U.S. dollar, smaller than expected grain crop from exporting countries, and increased use by China,” says Walters.

Usage indicates that ethanol finally will surpass feed as the No. 1 use of corn, he says, which makes the impact of fuel prices even greater.

“We’re still early into this crop year, but USDA is predicting that grain prices will come up a little. In the end, we’re looking at decreases in both stocks-to-use ratio and ending stocks,” he says.

There were some good pricing opportunities for corn back in June, says Walters, and now there are good opportunities for someone wanting to buy corn. “It’s going both ways right now, and there will be volatility,” he says.

Traders are now telling us — with the 2009 corn prices —they think a good corn crop is coming, says Walters. “We need to forget about that 2008 pricing because that may not be back,” he says.

According to National Agricultural Statistics Service (NASS), through the week of Oct. 4, 13 percent of the U.S. corn crop has been harvested, well behind the five-year average of 25 percent. “Corn harvest in states such as Illinois and Missouri are more than half behind their five-year average. Corn harvest in Minnesota has just started and is just about to start in North Dakota. For Kentucky, 57 percent of corn has been harvested behind the five-year average of 69 percent,” says Walters.

For soybeans, the USDA October report pegs production at a record of 3.25 billion bushels, almost 10 percent more than the 2008-2009 crop. Average yield was increased by .1 bushel per acre from the September report. “For Kentucky, the USDA increased the average yield by two bushels per acre from the September estimate for an average yield of 44 bushels per acre. For Kentucky, this year’s soybean yield would tie for the record with 2006 and 2004.”

According to NASS through the week of Oct. 4, 28 percent of the U.S. soybean crop had been harvested, behind the five-year average of 36 percent. Soybean harvest in Arkansas, Illinois, Mississippi and Missouri are more than half behind their five-year average.

“For Kentucky, 16 percent of the soybean crop has been harvested behind the five-year average of 20 percent. The USDA expects an increase in soybean use over 2008-2009 of almost 4 percent,” he says.

For soybeans south of the equator, says Walters, beginning stocks for the 2009-2010 in both Brazil and Argentina considerably lower than in 2008 due to reduced production and increased exports.

Corn and soybean prices will continue to be influenced by the size of the U.S. corn and soybean crops, the export market and the energy industry, says Walters.

“Producers who are undersold should be catching up by selling into a rising market, which we are seeing right now in both the corn and soybean market. With a modest carry in the corn market, producers should consider storing grain and selling March, May, or July futures to lock in the ‘carry.’ This should only be done if the cost of storage is less than the amount of the carry and perceived basis increase.”

With little to no carry in the soybean market, he says, producers should consider selling off the combine and re-owning with the use of an option strategy. “For example, sell cash soybeans for harvest delivery and buy a March, May, or July call.

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TAGS: Outlook
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