The corn market seems anxious to build a weather premium into prices, but at this point in the growing season there is no reason to think the national average yield won’t at least match the historical trend-line. The dome on hotter-than-normal air that has been parked over the Plains has ventured into the western half of the Corn Belt. But for many fields that’s exactly what the crop needed. The concern is that a hot pattern might be established that will stick around all summer. The market is also anxious to see USDA revised plantings estimate, which is scheduled for release June 30. It’s widely assumed there has been a shift back toward corn since March, but the final acreage estimate is still expected to be down a couple million acres from 2005.
Strong usage is the reason the corn market is jittery about less-than-ideal conditions. There is certainly no shortage of old-crop corn, as the market is looking at a carryover in excess of two billion bushels. But the ethanol industry is expected to continuing growing at a very rapid pace and it has been a very good year for U.S. corn exports. The corn market will need something better than a trend yield to satisfy expected demand. Plus, a Chinese processor bought U.S. corn last week for the first time in years, which gave the market another shot of demand-side confidence.
Corn futures go into the holiday-shortened trading week just below contract highs. The trend is clearly up, but this market could be getting close to completely a fifth and final wave up.
The trend is sideways at best for soybean prices and for good reason. The underlying fundamentals for soybeans aren’t nearly as explosive as what the corn market is looking at. U.S. soybean plantings will likely be up more than 3 million acres this year, which makes another record-high U.S. carryover a sure bet without widespread and serious production problems. Global soy stocks are also record large, although at least a modest reduction is next year’s Brazilian soybean plantings total is expected.
The most positive thing the soybean market has going for it is weakness in the value of the dollar, especially against the Brazilian real. This makes U.S. soybeans and soy products more price competitive in the world marketplace. Speaking of the soy products—there has been a great deal of talk that strength in crude oil will lift soyoil prices because of increased demand for bio-fuels. This could eventually be true, but there aren’t enough bio-fuel plants in operation to make much difference this year. Plus, long soyoil futures positions are being spread against short meal futures so it really doesn’t help the value of raw soybeans much.
The wheat market is still trying to figure out how much the ongoing drought in the southern Plains has cut hard red winter wheat production. Another week of hotter-than-normal temperatures certainly won’t help any. More crop stress could easily mean more fields won’t be worth harvesting. It could also trim yield potential in areas outside the worse of the drought-stricken part of the country. A great deal of lost production has obviously been factored in wheat prices already. When this market turns it will likely see a rapid-fire selloff. But the near-term trend remains upward for this overbought market.
Despite assurances from USDA that fed cattle supplies will be generous for at least a couple more months, packer buying interest perked up last week. Excellent processing margins and a firm tone in the wholesale beef market clearly helped. There are also reports that the Japanese market could reopen to U.S. beef as soon as the end of June. Futures start the trading week at new highs for the move.
The cash hog market has backed away from the May highs, but pork producers should not panic. The supply of market ready hogs should be manageable until at least mid-summer and pork demand appears to be reasonably strong—especially export demand. It’s the extended hog price outlook that’s cloudy. Primarily due to increased feeder pig imports from Canada, U.S. pork production could be up 3% from last year’s record-setting level. The continued increase in live hog imports from Canada does not mean there will be a significant jump in total North American pork production, but it will make market hogs more readily available for U.S. packing companies.
