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USDA reports signal farmer grain marketing sooner rather than later

Agriculture.com Staff 01/12/2010 @ 8:47am

Tuesday's USDA reports -- that showed healthy grain stocks in the U.S. and abroad -- carried a clear message to corn, soybean and wheat farmers: Leave your upside open and do whatever you can now to nail down some profits, because the longer-term supply and demand picture could be a bearish one.

The agency's latest Grain Stocks report released Tuesday shows U.S. corn stocks are up 9% from a year ago, while soybean and wheat stocks are up 3% and 24% respectively. Analysts attribute the scenario to a combination of slowing export demand and surprisingly high 2009 corn and soybean yields. And, though there will remain a lot of volatility in the grain trade through the next year, it's clear that the plentiful grain supplies will be a major component of the market picture in the next year.

"The market has given us a clear signal that we will have plentiful supplies of corn as we get into the 2009-2010 marketing year," says Brian Basting of Chicago-based Advance Trading. "With the size of the South American soybean crop coming on, we will also have a situation of plentiful supplies of beans.

"The key message I want to share with farmers is these markets have given us a strong signal that domestically, we're not running out of these crops and the markets have given some good opportunities today for 2010 prices," he adds. "You really want to be aggressive with 2010 pricing and realize that we are looking at better economics for 2010 with input prices lower. Risk management is important."

Taking advantage of these opportunites should come in the form of 2010 new crop sales now, says North American Risk Management Services market analyst Jerry Gidel. At this point, the deck is stacked in a fairly bearish manner, making it important to cash in on some key support points in the trade in the coming days and weeks -- especially for corn, he adds.

"I recommend producers have 30% to 35% of their crop sold," Gidel says. "There's a downside risk in corn over the next 2 months; that downside could be $3.80 on nearby or $4.00 on December. We're going to have volatility in this market, big-time."

And, what about the outside investment that's returning to the grain trade? Because the index funds and other large investors coming back to the grains look at the trade more long-term, their involvement will likely not be turned away because of the bearish supply and demand picture painted by USDA's reports.

"We have a new asset class of investors in the agricultural markets and they look at things more long-term sometimes than we do, especially when we look at demand numbers," Gidel says.

Tuesday's USDA reports -- that showed healthy grain stocks in the U.S. and abroad -- carried a clear message to corn, soybean and wheat farmers: Leave your upside open and do whatever you can now to nail down some profits, because the longer-term supply and demand picture could be a bearish one.

A big reason for what could be a substantial slide in the global demand for U.S. soybeans lies in the near-matured soybean fields of Brazil and Argentina. Harvest is just beginning in some parts of South America, and as the grain starts flowing there, it could mark the end of a recent run-up of U.S. soybean demand.

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