Ready for a rally?I have been asked several times lately if I think corn and soybean prices can rally much after the recent lift from the $ll.52 low on November soybeans and the $5.72 low on December corn.
By: Sue Martin,
I have been asked several times lately if I think corn and soybean prices can rally much after the recent lift from the $ll.52 low on November soybeans and the $5.72 low on December corn.
Many traders are bearish for next year, and that may be the trend. I checked with various sources. While world stocks of wheat appear and are plentiful at this time, index funds have indicated that they are going to allocate money into wheat futures from now to year-end.
Oct. 24 markets were quiet, and I think many of us are being lulled to sleep. Bearish attitudes abound. In fact, it is easier to find a bear than a bull.
When corn prices were higher than $7.50 per bushel, traders were wildly bullish. Then September ended and many became bearish. Now, some analysts would say we are entering a trading range. Drop the market below $6, and they would be bears again. Is it that easy? When corn prices were more than $7.50 per bushel, we saw some demand resistance in the poultry sector and some substitution of wheat in feed rations. However, with a $2 break in prices, demand for corn is strong, which is being witnessed by firm basis levels during the gut slot harvest.
USDA expects a record 2.7 billion pounds of beef to be exported this year, which represents a record 10 percent of domestic production. Likewise, a new record is forecast for next year, with 11 percent of production moving to foreign consumers. It was 2007 that we saw only 5 percent of the domestic beef production exported.
In September’s report, the trade was surprised with a higher-than-expected number of placements that resulted in more than 500,000 cattle being fed than a year ago. Feed grains used by cattle in feedlots from this year’s crop likely will be more than 5 percent higher than what was fed from the 2010 crop. Calves can eat corn, but they also can add weight with forages. With the high number of placements in September, one would suspect that corn has gotten cheap enough in the break relative to forages. The jury still is out as to how good the wheat pastures will be this year. In September alone, December corn futures broke $1.75, and I think that should help brighten the profitability for feedlots. The number of calves less than 700 pounds was up 14 percent.
The rebuilding of corn usage is starting to occur. With optimism in the beef and pork industry, I would think corn prices have potential for upward mobility to go along with the potential livestock returns. Hog production should be higher next year. It makes me question the low level of corn feeding that USDA has penciled into its supply and demand numbers. USDA estimates corn feeding and residual usage will be down 2 percent while animal numbers and usage appear to be closer to more than 2 percent That equates to about 150 billion to 200 million bushels that should be added to feed usage. Ethanol profitability is good, so it is hard to believe corn used for ethanol processing will decrease. Crude oil prices on the board reached more than $91 per blue barrel Oct. 24. Should ethanol slow down, it would mean less distiller’s grains, and that puts more demand on corn for feed.
However, because ethanol is profitable, producers of the fuel have the ability to bid higher for corn. As farmers know, for the past two growing seasons, farmers sold a little too early, and between price increases and Mother Nature working over their yields, farmers most likely will fill their bins and be slow sellers. That should help aid the basis. We, as producers, just need to keep ourselves objective. We have had nice-size crops, but we don’t seem able to overproduce the demand.