Making an informed marketing decision requires knowing what bulls AND bears are looking for in price action. We’ll share our key thoughts on each market – followed by a verdict. So… grab a cup of coffee and let's dig in and sort it out...
CORN
Karen’s Thoughts: BIG surprise on corn acre intentions for this year! We knew there “could” be some shifting of acres this year, but this number (78.019 million), was exceptionally lower than the trade anticipated. This could keep corn traders on their toes, viewing the current numbers could result in shrinking supplies in a growing demand market. Remember: “Perception means more than reality.” I would however keep a cautious eye on corn, since this market is notorious for shifting attitudes at the drop of a hat. Weather is still a key component to planting. If we happen to get a stretch of warm, dry weather – those big acre shifts (primarily in Illinois) could see growers adding corn again. At this point, we work off the USDA numbers, and with this acreage estimate a “normal” trendline yield equals approximately a 10.7 billion bushel crop. That is shy of expected usage for the upcoming year – but the carryover continues to more than make up for it. So, if this growing season brings excellent weather and trendline estimates grow higher, than we could find ourselves trading a not-so-tight carryover. If weather is unfavorable and trendline yield estimates shrink, then this market could likely trade out of fear. Bottomline: USDA has set the stage for what could be a VERY actively traded corn futures market this growing season! Scott’s Thoughts: USDA’s survey featured a 3.74 million acre cut to intended corn acreage for 2006. That’s a much bigger cut than I (or the market) expected. It is very rare for acreage survey data to live up to the winter time hype about switching – but this is one case where the acreage change guess exceeded even the most bullish trade guesses. Now that we have a planted acreage estimate of 78 million acres to work with, what does that mean? Using a normal harvested acreage percentage and roughly a trendline yield, we’re looking at initial crop estimates in the range of about 10.7 billion bushels. That’s just a little below the current year usage estimates. So, IF this acreage is right and IF yields are near trendline, the U.S. will likely see a reduction in carryover for 2006-07 of as much as 500 million bushels. Considering that we’re starting the marketing year with about 2.3 billion bushels in estimated carryover, we will likely still have plenty of corn left in the bin. So, overall, I’m sticking with a cautiously bearish attitude and focusing on capturing this springtime weather premium that is priced into new-crop corn futures. Our Corn Verdict: Last week we talked about how bounces are possible. We got the bounces we expected – and more – thanks to bullish data from USDA. But don’t lose track of the potential for a decline in this market based on still big carryover projections. Make sure you are using this strength to build hedge coverage. Call us for hedging strategies at 800-262-4643.
SOYBEANS
Karen’s Thoughts: Not too long ago the soybean market was the darling of trade attention – since carryover was exceptionally low. In fact we were calculating supply numbers and how we could run out of beans before harvest. Now, we are staring at a total flip-flop in numbers and attitudes towards beans. Current carryover levels are huge. The USDA planting intentions estimate of 76.895 million acres makes this carryover number appear enormous. IF farmers do follow through with these intended soybean acres, we could be looking at some pretty ugly prices by fall. I say IF for one reason – this crop isn’t planted YET – keep that in mind. Planting intention numbers are based on early farmer surveys, a lot of factors could still change the outcome. Soybeans have several factors lending to a negative bias besides the carryover and the acreage numbers. The South American harvest is in full steam right now. The demand market is best summarized as soft, due to bird flu and other factors. The soybeans don’t appear to be the darling of money flow for this growing season. Scott’s Thoughts: The soybean market faced a fundamentally bearish outlook even before the March 31 acreage data. That picture just got a whole lot uglier today. USDA’s survey featured a 4.753 million acre increase in soybean planting intentions from year-ago. Plug in even a “so-so” crop yield for this growing season and we could easily harvest a crop next fall of 3.3 billion bushels. With usage struggling to reach 2.8 billion bushels for 2005-06, that points to yet another hefty increase in carryover. Bottom line: About the only hope for bean bulls now is a serious weather problem this summer. Barring a major crop failure, bean futures face serious downside risk. Our Soybean Verdict: The fundamental picture for the soy complex was bearish before the acreage report – and is even more bearish now. Record world and U.S. carryover forecasts suggest that prices will ultimately need to drop to encourage more demand and to discourage beans in South America in the next growing season. This market faces huge downside risk if traders truly start to believe USDA’s acreage estimate. Call Karen or Scott at 800-262-4643 to get price floors in place.
WHEAT
Karen’s Thoughts: Threatening drought conditions don’t appear to be the focus of wheat traders any longer, as some much-needed rain has made its way to the crop in the Southern belt. Instead, I look for traders to shift their attention to planting acres for the spring wheat and then the upcoming harvest of winter acres. Weather will be critical for both sides as too much rain could actually become an issue at some point as well (if it hinders planting or harvest). Keep an eye on bullish corn fundamentals too, since it could drift over to support wheat prices as well. Scott’s Thoughts: Looking at the total wheat acreage estimate for this year, it’s easy to focus on the bullish aspect of a slight cut in acreage from year-ago. But keep in mind that the reduction is driven almost entirely by a sharp cut in durum acreage. That could mute some of the market support from this reduction, as spring wheat acreage is near steady with last year and total winter wheat acreage is up from last year. That still means trade attention should stay locked on yield prospects in the Plains – which implies that weather will remain the near-term driving force for prices. Our Wheat Verdict: Spring weather can either pump some extra emotion into the wheat pit – or drown bullish hopes if/when rains arrive. Be prepared to adjust your marketing plan accordingly. Call Karen or Scott at 800-262-4643 for help in managing this volatility and protecting downside risk.
