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Weather, U.S. Dollar supporting corn market highs

Agriculture.com Staff 05/26/2009 @ 8:22am

Traders did not have a need to think about things today. Forecasts moved the Monday and Tuesday rain event into a late Saturday through Tuesday weather event. That reduced the timeframe eastern Corn Belt farmers have to "catch up" on these late plantings.

Western Corn Belt farmers are done with corn. This weather event is of key concern for the eastern guys. We have heard pretty consistent talk many Illinois guys are around 2/3 complete. They need until Wednesday to finish corn. If rains hit by Monday they are out of luck. Also, keep in mind much of this week's planting was selected ground. The low spots are what they're getting into this weekend and early next week. As of this past Sunday night Illinois was 20% complete while Indiana was 24% complete. Now, we must keep in mind this is not an "acreage shift" issue. Most farmers are still sticking with what was planned for corn. The problem with late planting is a yield issue. We showed clearly last week that late corn plantings historically mean little chance of hitting that important trend yield. Will that relationship be the same with these new genetics? Last year's late plantings managed yields just under trend with good weather. We would imagine with average weather there could be a noticeable effect on yield.

Crude oil and corn value: This will be the highest weekly crude oil close since November. As we have noted many times before crude oil prices and unleaded gas (RBOB) prices affect ethanol prices. The bushels that go into ethanol plants are actually valued at a higher level than regular corn for feed or exports. We have been watching the rise in crude and unleaded gas closely but have to point out ethanol prices have not enjoyed the entire rally. While the value of ethanol has risen in recent months it has only risen slightly. With that in mind we would suggest most of the recent rally has been driven by corn fundamentals and the U.S. dollar rather than crude oil.

U.S. Dollar and exports: While crude oil is connected to corn via ethanol prices and soybeans via bio-diesel, the US dollar may affect exports. The U.S. dollar is a factor to consider with all commodity markets. Changes in the $ side can impact who buyers choose to supplies their needs. We do have to note the exchange rates are not the #1 factor for exports. There is not always a clear relationship between exchange rates on actual export levels. Buyers of grains will generally buy if they need it. However, there is no doubt a falling US dollar may be beneficial to our export program. One example of this may be South Korea. This substantial buyer of US corn has seen the "Won" appreciate against the U.S. dollar by 8% in the past month. From early March, it has appreciated 25%! That gives them more buying power (excluding the price of corn + freight).

Direction: We have no problem respecting the current bullish trend. Weather and the U.S. $ (exports) are supportive right now. Corn futures closed at their highest levels yet of this uptrend and they are right in doing so. Today we did take the first bearish corn trading position for some time. Keep in mind this market has not been tested by a successful week of planting yet. There has not been a 20% one-week advancement in planting yet. While we are not bearish in the short term, we had noted July corn did have trouble holding above the 430 level this week. We have a short position and are only risking a small amount. We do not feel a top has been put it yet. For producers we are happy with our limited 35% hedge position. It has a 420 floor in place and will producers will benefit from a rising market all the way up to 540.

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