Volatility continues in commodity markets

Volatility continues to be the name of the game in commodity markets, with the most recent supply and demand numbers giving a hint of what is yet to come, says Bob Goodman, Auburn University Extension economist.

“Everything is so volatile — it’s a different ballgame from what it was a year or so ago,” said Goodman speaking at the recent East Central Alabama Cotton-Peanut Tour. “New supply and demand numbers have set the tone for the coming year and what we’ll be dealing with. Since we’re increasing wheat acreage and shifting other acreages, we can get a pretty good picture of what we will be looking at next year.”

Starting with the corn crop, Goodman says the flooding in the Midwest turned out to be a “non-event” as far as supply and demand goes. “Even though acreage is down, we’re still going to end up with just over one billion bushels of carryover this year. That’s an efficient amount, and it’s not short — it’s probably pretty close to normal,” he says.

The estimated average U.S. corn yield for this year is 155 bushels, which is above trend, says Goodman. “Considering the damage done to this crop, it’s a pretty good yield. Corn prices have been down. It has been as low as $5 and it has bounced back and fluctuated according to the fuel market. Next year, we’ll probably see a recovery of corn acreage, but I don’t think we’ll see a surplus. We’re not back to the old ways where we produced so much and had such an onerous over-supply that the prices stayed down for a long time.

“But I don’t see a return to $8 or $9 corn for next year. Right now, I would probably lean more towards earlier pricing. Not at the moment, because this is our seasonal low time. But take advantage of early pricing opportunities in the corn market,” says Goodman.

Turning to soybeans, the U.S. estimated average yield is 35 bushels per acre, he says, and up to about 500 million bushels of carryover based on use that we’re seeing at current levels.

“If the economy is off and our exports improve, we might could draw down those stocks some. But those stocks are going to mean that we’re not going to return to $16 or $17 soybeans next year. If I were planning to plant a large soybean crop, I’d be really aggressive in pricing soybeans. I think soybean prices right now have a lot of strength we might lose next year because of the carryover situation,” he says.

December cotton, says Goodman, is right at 70 cents, and it has been that way for several weeks. “Supply and demand numbers were very bullish if you look at the straight numbers. We’ll draw down ending stocks from 10 million bales down to five million bales for the 2008-2009 marketing year. That would be very positive towards price. The problem is that the five-million bale ending stock is based on a 15-million bale export estimate. Last year, we were forecast to export 13 million bales, and that year is ending right now and we’re falling short,” he says.

With the world economy as it is, most people in the cotton industry don’t believe the United States will export that much cotton, so the price pressure continues, notes Goodman.

“December 2009 futures are only 83 cents. One farmer in north Alabama said that for him to keep planting cotton next year, he would have to see 93 cents in his pocket, and that means $1 on the board. So I’m looking for continued price pressure on cotton. The good news is that we’re not one of those areas in the United States that depends on cotton — we have planting flexibility,” he says.

The United States had a huge wheat crop with a large increase in carryover stocks, says Goodman. This means there will be a lot of pressure on wheat prices next spring, especially if another large wheat crop is planted in the fall.

“Watch the wheat acreage, and price aggressively on wheat if you plan on planting it. I’ve always said that I’d like to see a situation where we sold our crops before we even planted them to insure we had our marketing done before we put it in the ground. If you can find someone to book it, it would be good to lock down a price as early as possible,” he says.

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TAGS: Outlook
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