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Corn trending higher?

Corn markets have been strong lately, Wednesday running to new 7 week highs on the
strength of nearby futures contracts. Bull spreads are working in the corn
market, which means it's nearby demand that is spurring the corn market higher.
Confirmation of that demand has been coming weekly with export sales exceeding
expectations. The fact that sales are outstanding compared to current weekly
shipments in indicative of how much the tide has changed for corn exports in the
past few weeks, since China made their first purchase in years. It seems all the
world's buyers are now interested in buying corn - today rather than tomorrow!

That interest in corn is good for the market, as apparently it is true that corn
prices represent a value buy in the marketplace. The old crop corn is the
strongest market, a good sign indeed as nearby demand generally isn't canceled
for later shipments. It is a sign of buyers who are more pressed to get
supplies of grain into their hands, and that is always a positive sign for a
demand led market (which corn seems to now be).

USDA's monthly report did nothing to dampen the enthusiasm of the demand-led
bull market for corn. While we did see indications of larger supplies due to
the early planted corn crop (81% planted by Monday, May 10), as evidenced by
USDA's hiking the corn yield 2.7 bu above trend. Some were questioning whether
USDA would already start indicating an above average crop for 2010 just based on
early planting, but they boldly came out with another 200mb+ extra production
based on the early planting. Yet, in spite of that extra supply, still we
didn't have any extra carryout from what we thought we had last month.

The positive news all came on the demand side of USDA's projections, with an
increase in 2009/10 exports of 50 mb (was this due to the China purchase?) and
an increase in ethanol use by 100 mb. Feed use was cut 75 mb, but net we had an
increase of demand which combined with the reduction of harvested area and
yields for ND and SD (-21 mb production) meant a net drop in 2009/10 ending
stocks of 161 mb.

So overall, the USDA outlook for 2010/11 is for larger supplies (from increased
acres and above trend yields) with higher production; however, rising use is
expected to limit the growth in ending stocks. Total US corn use is projected
up 2% from the current year with higher expected FSI use and exports more than
offsetting a decline in projected feed and residual use. Ethanol use is hiked
200 mb from 2009/10 at 4.6 billion bushels as we continue to use more corn grain
for ethanol use again in 2010/11 (yet, its still growing!) as federal biofuels
mandates and strong blending incentives continue to boost ethanol usage. So we
end up with ending stocks at 1.8 billion bushels, still about the same as the
past few years of stocks levels. But we are using more corn, so that the
stocks/use ratio continues to suggest there is very little margin for error in
the US for the corn crop.

The positive news for corn was good for that market, but the information from
wheat and soybeans was not quite so positive. Increased ending stocks of wheat
(from 950 mb to 997 mb) and especially soybeans (from 190 mb to 365 mb) are all
negative numbers and could serve to keep some pressure on these markets.
However, with early planting of crops its also possible that a million acres
more of corn (give or take a few hundred thousand acres) will be planted. Could
that take away some soybean acres?

It seems the year is being set recently, with an improved outlook for corn that
is having a positive impact on the other grains as well. Lets hope this trend
continues, and the demand hike in corn spreads into the other grains as well.

The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be
reliable. The opinions and recommendations contained are based on
our judgment and do not guarantee that profits will be achieved
or that losses will not be incurred. Recommendations should not
be construed as an offer to buy or sell commodities. There is
substantial risk of loss in trading futures and options on
futures.

If you have questions about this column, call Progressive Ag at 1-800-450-1404,
or email ray at rlg@progressiveag.com.

Corn markets have been strong lately, Wednesday running to new 7 week highs on the strength of nearby futures contracts. Bull spreads are working in the corn market, which means it's nearby demand that is spurring the corn market higher. Confirmation of that demand has been coming weekly with export sales exceeding expectations. The fact that sales are outstanding compared to current weekly shipments in indicative of how much the tide has changed for corn exports in the past few weeks, since China made their first purchase in years. It seems all the world's buyers are now interested in buying corn - today rather than tomorrow!

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