Friday, June 26, 2009

A quiet end to the week as grain markets wait for news. Corn futures lost $.15 for the week but $.14 of that loss was on Monday while the rest of the week was non eventful. Soybeans were also quiet much of the week with the main feature being continued support for old crop as July futures gained $.22 for the week as users chase a dwindling supply of cash soybeans with new crop November losing $.15 as a traders generally interpret weather to be negative.

On Tuesday, June 30, USDA will release two key reports that could have big-picture ramifications for the grain markets. Given the old crop tightness in the soybean balance sheet and the ongoing uncertainty about domestic corn feed usage, the June Grain Stocks report could have notable implications for near term trading activity. On the other hand, the extremely divergent planting conditions across the U.S. this spring, combined with the estimated large reduction in total U.S. cropland from last year has resulted in widespread views on this year's planted area. Accordingly, the acreage report hold the potential to include notable surprises as well.

Corn - The largest unknown for corn is feed usage, animal numbers continue to run well behind year ago levels and the pace of that may continue for some time. The reduced feed demand could lead to a 12% reduction in feed demand for the year to date. Exports seem to be following along USDA forecast and the ethanol industry is getting fired back up as margins improve. I would look for June 1 corn stocks to be near 4.2 billion bushels compared to a year ago at 4.03 billion. Corn acre ideas seem to be coming in around 84 - 84.5 million acres down slightly from the USDA March estimate of 85 million.

Soybeans - Given the strong old crop cash basis and the $2.00 premium that the July contract has vs. November the Junes Grain Stocks report could hold significant ramifications for old crop price action in the coming months. The USDA currently is estimating a soybean carryout of 110 million bushels for a record tight 3.6% stocks to usage ratio, this explains the strong cash basis levels... The strong export program this year is starting to wane as South American stocks have become available to the market but the domestic market has been able to step in an provide demand for soybeans. Traders have been watching for signs of a slowdown in usage with domestic processors crushing about 6% less beans than last year, will this slow more or not? We would expect to see June 1 soybeans stocks at 580 million bushels or so compared to 676 a year ago with the average trade guess of 586 million. Warning, a year ago USDA surprised the trade in September with a reduction in "residual" usage which increased carryout, a stocks number of 600 million bushels or so on Tuesday would be a warning that they may be inclined to reduce the current 73 million bushel estimate. Soybean acres are the biggest wild card on the board for Tuesday, Vegas hasn't started to lay odds on it but that is where the action would be. We are looking for an increase in acres from the March 76 million acre estimate but how much? I'll say up 2 at 78 million compared to the average trade estimate of 78.3. Bean acres seem to be where we may "find" some of the lost acres from a year ago... Stay tuned.

Phil Farrell