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Bryan Doherty: Now what?

02/11/2011 @ 8:22am

Yesterday’s monthly USDA supply and demand report swirled through the markets and caused another set of strong rallies in many prices.  The corn data caught traders particularly by surprise as the USDA increased demand for both ethanol and sweetener usage.  

The bullish corn data only serves to heighten the interest in the upcoming annual Outlook Conference, to be held February 24-25.  At this meeting, USDA analysts will have the chance to present their initial versions of the 2011 crop year supply/demand tables.  How does the USDA believe the tight corn situation will resolve itself?  

There simply needs to be more acres planted to corn in 2011.  In an effort to attract more corn acres, new crop prices continue to rally, although not quite at the same pace as old crop.  Given that one area that could plant corn acres is the south, the simultaneous rally in cotton prices is not good.  Cotton and corn are competing for the same acres—how will this battle turn out?  Soybeans are also an attractive crop, as well as possibly rice.  There will also be a battle in the Dakotas between corn, soybeans and spring wheat.  There are lots of acres up for grabs here.  

Beans continue to come up short in this battle, in spite of new crop futures prices around $14.00.  So far, it would appear that bean acreage will hold close to steady with last year.  To meet upcoming demand, the Brazilian soy crop may be the saving grace.  Larger, even record, crop estimates for this South American country are surfacing, based on strong early yields and rainfall that is well distributed in the country.  For Argentina, the estimates are fairly stable.  South American beans may turn out to be crucial in meeting growing world demand for this vital source of protein and cooking oil.  

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