Weaker Dollar offers little support
The grains and oilseeds markets closed mixed, with old and new crop corn making small gains on short covering while new crop soybeans eased. Overall volumes were light throughout as traders appear content to count down the clock ahead of Tuesday's USDA acreage update.
The US dollar weakened by more than 500 points but failed to spur much activity in the grains arena ahead of the acreage report. Right now, more sluggish trade is expected Monday, assuming now major changes to the weather forecasts surface over the weekend.
Turning to Tuesday's numbers, it is clear that this report has the potential to surprise, as we believe the landscape couldn't be more different than when the initial survey for the March acreage report was conducted (late February). At that time, input costs remained high, crop prices were spiraling lower, and a great deal of uncertainty surrounded the global economy. Since then, inputs such as fertilizer have declined notably, crop prices have endured an extended rally, and investors have regained a hefty appetite for commodities in general.
When we consider that new crop corn prices have jumped from $3.90-4.00 region when the March 31 survey was conducted to $4.60-4.70 by early June (and at the height of planting season), we have to allow for the chance that many producers changed their tune during that period with regard to corn's appeal as an extensively-planted crop. We appreciate that poor weather conditions will have meant some acres had to be abandoned along the way, but overall we are anticipating that $4.50 + corn to have had a sustained appeal to several producers throughout the planting season. As a result, we are not expecting too steep a decline relative to the March 31 numbers, and indeed would not be too surprised to see total corn plantings come in fairly flat or slightly higher than the 85 million projected this spring.
On the soybean front, we've seen prices put on an even more impressive advance since early March (with Nov prices rallying more than 36% from March 2 till June 1), and so we are certainly expecting those high prices to have purchased additional acres relative to the March 31 figures. So a 2 million acre rise to 78 million total planted soybean acres would not be a surprise. If we see such a rise, there's a good chance that new crop prices will come under pressure, especially if the USDA's accompanying quarterly stocks figure is not as tight as many are fearing.
Looking beyond the report, if the USDA provides no real surprises, then the market will likely shift focus to the favorable weather outlooks, and so again could lose bullish momentum quite quickly. If you are not caught up on hedges and sales, or would like a chat about your positioning going into the report, please don't hesitate to give us a call on Monday.
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