Grain prices were driven this past week by weather rather than demand.
Weather markets always become emotional and end suddenly and fall much faster than they rallied. Still, corn futures have seen (at time of writing) a more-than-$1.50 move in a mere two weeks. Midwest weather and especially, Iowa was in the spotlight for news. The New York Times carried articles on the Midwest farmer's plight. Unlike drought-driven markets, flood-driven markets tend to end earlier. It seems that when the news media is focused on the corn and soybean market, it may be time to sell some cash corn and soybeans.
This year, I suggest that producers plan on less-than-average yields and then sell in percentages of that amount.
Even wheat has taken some hits because of wet weather. Thirty-five counties in eastern South Dakota have been listed as at high risk for scab by extension pathologists. The remaining 31 counties are said to be at intermediate risk. It is important to apply fungicides at the right time or failure to do so can induce vomitoxin or another micotoxin that develops in wheat which has be subjected to wet and cool conditions.
The anticipation of gaining 2 million to 3 million acres in corn is gone. Now, traders hope to hang onto the 86 million acres that USDA forecast last March. However, rumors of potentially 4 million fewer acres is growing, and that should support the market on setbacks as we move toward the end of the month.
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In its June 1 supply and demand report, USDA forecast the U.S. corn harvest at 10 percent less than a year ago. Production will fall to 11.735 billion bushels versus 13.074 billion bushels and versus last month's forecast of 12.125 billion bushels. Carry-out for the new crop is forecast at 673 million bushels, the lowest since 1996 and below the average trade guess of 728 million bushels.
Last month, stocks were forecast to be at 763 million bushels. The 2008 corn crop will be the third largest on record and still come in at 775 million bushels less than what is needed for exports, biofuels and livestock feed.
However, USDA did forecast world corn ending stocks to increase from 99 million to 103 million metric tons. This is interesting since a major portion of China's growing area has been washed out by "quake lakes," leading to India's exports of corn to grow on Asian demand and Argentine production, while higher, will have to help domestic shortages before it is put into the export channels.
While the Argentine farmers have ended the strike, farmers there still are holding corn and soybeans off of the cash market. I hear estimates that the Argentine farmer will plant 8 percent fewer wheat acres this season because of dry weather that is reducing harvest potential. And, while Argentina has said it will export 500,000 metric tons of the 1 million metric tons that it has set aside for exports, Brazil still lowered its import tariffs to accommodate domestic demand.
Lastly, I continue to maintain my bullish sentiment for soybeans. China imported 13.65 million metric tons of soybeans the first five months of 2008, which is up 20.4 percent from a year ago. In the month of May alone, China imported 3.48 million metric tons. That was up 17.6 percent from one year ago, as well. I suspect this demand is stimulated from damage of the earthquake. I still look for July soybeans to exceed 15.71 and then 15.96½.
