End-users showing signs of needing grain
Despite higher ocean and barge freights, U.S. corn and soybean prices remain competitive on the world market, increasing exports and supporting prices.
Combined with exports, domestic demand appears to be growing with the cash basis levels tightening. These are all clear signs the end-user is trying to gain ownership of the product, analysts said.
Because producers in many cases have already sold what is needed for the year, and are now waiting for a weather-market spike, prying any physical crop away from them will be a tough task for the end-user.
However, a strong basis could spark some producer selling. It's clear that strong demand is providing underpinning for both corn and soybean markets, analysts said.
Jason Ward, North Star Commodity Investment Co., said the U.S. dollar appears to be bottoming out compared to other world exchanges. This is making U.S. corn and soybeans cheaper on the world market.
In comparison, U.S. cash corn priced around $3.35 per bushel and soybeans at $7.27 per bushel is sharply lower than China's corn at $5.25, and soybeans $11.00.
Plus, talk of China shutting off corn exports is sparking interest in U.S. corn, Ward said.
"That talk has some countries scared into buying U.S. corn," Ward said. "South Korea has been the biggest buyer in the last week. But, we've seen purchases from Guatemala. I've never seen that."
In addition, Pakistan has shut off corn exports, forcing their biggest buyer, India, to look elsewhere.
So far this week, China has purchased 18.0 million bushels of soybeans from the U.S. Last week, it bought 70.0 million.
"Most of these purchases are for 2008 crop," Ward said. "If they are buying old crop, it's coming from South America."
Ward said there appears to be plenty of sellers in the corn market at the $3.80 per bushel price for Nov. '07 contract, and $4.00 on 2008 crop.
"That seems to be where people are sticking their orders out there," Ward said. "They are taking some product off the market at those prices."
Mike Krueger, World Perspectives Inc., said the market psychology is focused on the idea that if the U.S. corn acres are going to be 12.0 million higher this year, that means 8.0 million fewer soybean acres.
"If that scenario is realized, soybean supplies would be half of what they are today," Krueger said. â€œSo, it's hard to tell when the bullish tone ends on soybeans."
As a place to get some ownership for the summer, (go long the market), anybody on the spec or end-user side is looking for a break in the corn market right now, Ward said.
"The name of the game right now is trying to buy puts, call options, or futures," Ward said.
Krueger said the producer should watch the corn basis closely.
"If the producer still has old crop still on hand, at least fixing the basis is a good idea. Then, they can hope to get a weather run on the futures market to be able to price it later."