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Published February 15, 2011, 10:28 AM

Corn, soy tops likely not in

With the seasonality of February a weak month normally, traders were quick to liquidate longs and rumor that China would cancel sales and move its business to Brazil since harvest pressure has soybeans nearly 50 cents cheaper than U.S. soybeans.

With the seasonality of February a weak month normally, traders were quick to liquidate longs and rumor that China would cancel sales and move its business to Brazil since harvest pressure has soybeans nearly 50 cents cheaper than U.S. soybeans. I suspect that we will not see much in the way of cancellations as China has exhibited a desire to bring the soybeans home with nearly two-thirds already shipped of what it has booked. U.S. soybean export sales account for 89 percent of what USDA has targeted for 2010 to ’11, and we still have half of the year left.

The epicenter of China’s drought-stricken area is the province Shandong, a major soybean and corn producer. If rains fail to fall during the rest of February, it is said that Shandong is in the worst drought in nearly 200 years.

This past week, the Ag Ministry estimated that China’s drought now included 19.5 million acres. That is up from the previous estimate of 15.1 million acres just the week before. For the past seven years, China has increased corn acreage at the expense of soybeans.

China has told us that its reserves are good at nearly 200 million metric tons? Right. After three tough years of weather and growth and wheat production under the gun, we are to believe that? If so, then why has corn continued to hold high prices? Food inflation in India is at 18 percent and China’s consumer spends 39 percent of annual income on food, and news of high-priced food has been in newspapers for some time.

Furthermore, China’s government has strategic plans to enhance agriculture and China’s largest processor, COFCO, estimates that it will process 6 million metric tons more of corn for feed annually by 2013. Add to this that CNGOIC estimates feed processing in China will grow to 250 million metric tons by 2020 and it already is at 150 million metric tons.

China during the late fall and early winter dealt with foot-and-mouth disease and H1N1 in the south. A huge number of hogs and poultry were put down to irradicate the diseases. The Chinese now are into expanding their flocks and swine numbers.

China needs corn. It also needs soymeal. China produces 463 million head of hogs vs. the U.S. producing 118 million head. The numbers are astounding. Next is India, which has a middle-class population of 100 million people. This means more meat, eggs and milk. Broiler production is expanding 12 percent to 13 percent annually. India needs to improve its storage facilities and, with expanding industries, there isn’t any more land. India in the next five years may become a net importer of corn. Late last week, France announced dropping import tariffs into June 30th for feed grains. The U.S. carry-out fell by 75 million bushels with 50 million bushels in increased demand for ethanol.

Does that figure up to nearly 5 billion bushels of corn just for ethanol vs. the previous 4.95 billion bushels needed? Yes, the U.S. corn supply in days of usage is 18 with a stocks as a percentage of usage at 4.9 tying the tightest stocks to usage ratio of 1995 to ’96. While no changes were made to the soybean stats, soybeans have a record-tight stocks-to-usage ratio, and the export demand for both products simultaneously this last January was the most aggressive in 22 years.

We have yet to ration either commodity, and the pull for acres is on. Therefore, I suspect the tops are not in. Meat prices are record high, and while livestock producers don’t like high-priced grain, they aren’t complaining too much and have not shown any signs of rationing.

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