Ag Weekly Online: Twin Falls, Idaho

CORN - Due to the harvest delays, the month of October was bullish for corn values as corn closed 22 cents higher.

Harvest is just beginning in the majority of the cornbelt as extremely wet conditions have kept corn combines in the sheds. There is a huge crop of corn sitting out in the fields, but the market is becoming concerned about disease and quality issues. Select producers have repeatedly expressed concerns that due to the wet corn and extremely wet fields, they plan on leaving the corn unharvested through the winter month and will risk potential yield losses to gain natural dry down of corn. The market will have an unique job this fall and winter.

Much of the crop will get harvested this fall, but it promises to be labor intensive. How quickly will producers sell their crop after it is harvested remains to be seen, but the market will likely have to pry it out of farmers hands with stronger basis levels throughout the winter. There is a huge demand base for corn, currently estimated at 13.030 bb, is the largest on record. With the huge demand base and corn either unharvested or in farmer storage, the corn market will need to bid for acres this spring to rebuild the ending stocks at a more comfortable level. In November, weakness in prices will be used as a buying opportunity for end users.

SOYBEANS - Due to the harvest delays, the month of October was bullish for soybean values as soybeans closed 48 cents higher. Harvest is underway in the majority of the soybean belt, but extremely wet conditions have kept combines in the sheds. There is a record crop of soybeans sitting out in the fields, but the market is becoming concerned about disease and quality issues. Good to excellent yields have been recorded this year, however final yields could still come in below expectations if adverse weather inhibits harvesting even further. With harvest Demand for U.S. soybeans is forecast to be record large. The huge demand base for soybeans, estimated at 3.169 bb, comes in the form of strong export demand and increased consumption of oil for soy bio-diesel usage.

Ending stocks are forecast to remain very tight at 230 mb. This is only 25 mb larger than last year at this time, despite a record large soybean production. Demand is outpacing last year’s record export pace, indicating this year’s export profile is front end loaded. The market will be anticipating a record soybean crop in South America and updates on this year’s production from South America will be a major driving force for prices throughout the winter. Weather during the South American growing season will be closely watched. Like corn, soybeans too should bid up for acres this spring.

WHEAT - Led by corn and soybean harvest delays, along with slow winter wheat seedings, Chicago wheat managed to close 36 3/4 cents higher in the month of October. While harvest and subsequent planting delays are a positive driving force for prices, the main fundamental driving force for wheat prices will continue to be the growing supply of world wheat stocks. World wheat stocks have risen to 186 mmts from 166 mmts only two years ago.

Foreign countries continue to be strong buyers of wheat as wheat is consumed for food, however U.S. wheat now has to compete with other countries to export their wheat supplies. U.S. wheat exports are forecasted to be 115 mb below last year due to the increased foreign demand. While the winter wheat seedings in the Plains are slow, the good to excellent ratings are over 65% g/e on the crop that has been seeded. Ample moisture across these states has given the winter wheat crop a great start to the growing season. The fundamental outlook is for lower prices during November, unless the U.S. dollar plunges to new lows, while will force speculative buyers to the market.

CORN ANALYSIS

Corn closed the week $.31 3/4 lower. A combination of a rally in the U.S. dollar and improved weather forecasts, pressured corn last week. The U.S. dollar reached new lows, but managed to recover to close above the downtrend line. Since the majority of the trade is long commodities and short the dollar, the higher dollar pressured commodities. The U.S. corn harvest remains dreadfully slow. The USDA estimated U.S. corn harvest is now 20% complete vs 17% last week, 37% last year and 58% average. The states of Iowa 12%, Illinois 14%, Minnesota 6%, Indiana 21% and Nebraska 15% are the largest corn producing states and are all well behind the normal pace. With so little corn harvested, the trade has to believe that if farmers can harvest this crop, significant harvest pressure will eventually hit the market. Technically, corn has hit a 62% retracement level on harvest delays, which mandates producers increase their marketing efforts.

The weekly export sales report showed net sales of 367,200 MT were up 56 percent from the previous week, but down 44 percent from the prior 4-week average. Increases were reported for Mexico (90,300 MT), the Dominican Republic (74,000 MT), South Korea (56,200 MT, including 54,500 MT switched from unknown destinations). So far, this year’s sales are outpacing last year’s figures, 681 mb vs. 654 mb. The US needs to export 32.7 mb each week to reach the USDA forecast.

STRATEGY & OUTLOOK

Producers should have added additional hedges at the 62% retracement of $4.09. Cash sales should be increased to the 70% level while put options should be rolled up to maximize protection levels. The market is providing an incentive to sell the crop at strong basis levels and an opportunity to re-own the crop on a pullback once harvest pressure hits the market.

SOYBEANS ANALYSIS

Soybeans closed the week $.28 lower. A combination of a rally in the U.S. dollar and improved weather forecasts, pressured corn last week. The U.S. dollar reached new lows, but managed to recover to close above the downtrend line. Since the majority of the trade is long commodities and short the dollar, the higher dollar pressured commodities. While soybean harvest has picked up, it still remains very slow compared to the average.

The USDA reported U.S. soybean harvest is now 44% complete vs. 30% last week, 75% last year and 80% average. The largest soybean states, Iowa 47% and Illinois 33%, show the majority of the harvest pressure lies ahead of the market, if the crop can be harvested.

The weekly export sales report showed net sales of 691,000 MT were down 30 percent from the previous week and 21 percent from the prior 4-week average. Increases were reported for China (437,000 MT, including 110,000 MT switched from unknown destinations. This year’s export profile remains well ahead of last year’s record pace, 843 mb vs. 524 mb. The U.S. only needs to export 10.3 mb each week to reach the USDA forecast of 1.305 bb.

STRATEGY & OUTLOOK

Producers should be hedged in new crop soybeans when November soybeans reached the long held target of $10.25 to $10.75. Producers should have used a combination of cash sales, hedges and put options to effectively manage risk. Maintain hedges until the crop is harvested and increase sales to the 70% level.

WHEAT ANALYSIS

For the week, Chicago wheat closed $.53 1/2 lower; Kansas City wheat $.50 1/2 lower and Minneapolis wheat $.48 lower. Wheat values should slide quickly as there is no fundamental support for these prices. U.S. and world ending stocks remain huge and current usage is slow, leaving the stocks at a large level. U.S. winter wheat planting advanced to 76% this week from 69% last week and compares to 82% last year and 85% average.

The first look at the winter wheat crop conditions report shows 65% of the winter wheat is in the good/excellent category, in line with last year’s ratings. The weekly export sales report showed net sales of 347,700 metric tons were down 45 percent from the previous week and 42 percent from the prior 4-week average. Increases were reported for Taiwan (73,900 MT), Japan (72,800 MT), Thailand (45,000 MT), and Nigeria (43,900 MT). This year’s export forecast remains way behind last year’s sales profile, 477 mb vs. 692 mb. The U.S. need to export 13.23 mb each week to meet the USDA forecast. The lack of demand for U.S. wheat is the primary reason why wheat values are on the defensive and will continue to be throughout the winter.

STRATEGY & OUTLOOK

Producers should have now sold/hedged all of their 2009 crop when KC wheat reached the long term price objective of $6.80 to $7.00. Producers should have used a combination of hedges, options and cash sales to manage price risk. Producers should exit long hedges and should have made new sales/hedges on the retracement levels.

LIVE CATTLE ANALYSIS

Live cattle ended the week $1.72 lower while feeder cattle ended $.67 lower. Despite higher cash trade this week, live cattle closed lower to end the week as the market is anticipating cash to trade lower next week.

Packers remain adamant they have plenty of contracted cattle signed through the end of the year and will not be needing to bid up the cash market to get the cattle.

The cash cattle trade occurred in the southern Plains last week at $88.00 per cwt, $2.50 to $3.00 higher than the previous week’s trade of $85.00 to $85.50. Nebraska fed cattle traded at $135, $3 higher compared to the previous week’s cash trade of $132. Cash feeders at the closely watched Oklahoma City auction were steady this week compared to last week. The USDA reported last week's beef export sales at 11,300 tonnes, up from 8,500 tonnes previous week, and exports at 13,100 tonnes, up from 10,300 tonnes previous week.

STRATEGY & OUTLOOK

Producers should have price protection through a combination of options and hedges through the first quarter of 2010. Demand remains soft, so continue to hedge cattle as they are purchased. Hedge/buy puts on retracement levels.