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Corn sinks to new lows
Corn prices have sunk back to new lows after the USDA report, which was considered somewhat bullish by the trade last week, producing an upside reversal in corn that day. But price gains could not be held as harvest continued and expectations are that more yields hikes are coming for both corn and soybeans. EPA also announced plans to scale back the renewable fuels requirement, and that hit corn prices particularly hard over the past week. So Dec corn sagged down to near $4.12 this week, allowing Pro Ag to take off another 25% of corn hedges at $4.26 Dec futures or less and take another $2.11 profit on the second 25% of 2013 hedges.
In the USDA report Friday, USDA reported more production of everything but that extra demand would suck up virtually all of the extra production. USDA estimated corn production up 146 mb (slightly smaller than expected as acreage was cut 1.9 million acres, more than expected). Yields were 160.4 bu/acre, larger than expected (159.4 bu) but increased demand (feed and exports) meant carryout was only hiked to 1.887 billion bu, up only 32 mb from Sept. Soybean production was hiked 109 mb due to larger yields (43 bu vs. 42.5 expected) and smaller acreage (-700,000 acres vs. 500,000 expected), but once again they hiked demand (30 mb crush and 80 mb exports) to more than use all the extra production. This left ending stocks of soybeans at only 170 mb, only 20 mb larger than last month and less than expected (183 mb). Is USDA saying that whatever we produce, we can sell and get rid of?
It does seem that way, as recently soybean export sales and shipments have been particularly large. That seems to support the soybean large demand expectations, but leaves wheat and corn a little bit left out. On the production side, its likely USDA will need to hike final corn and soybean yields even further in the Jan. final production report, so that does provide a little cushion to the demand projections as well. But just how large that final crop production will be is important, as it provides more carryout to both corn and soybeans.
Harvest is advancing nicely for the corn belt, with it getting to the point where weather doesn't matter much as corn harvest is 91% complete (vs. 86% average), and soybean harvest 95% complete (vs. 96% average). Cotton is 68% harvested (vs. 75% normally), and sorghum 91% harvested (vs. 86% normally). The one crop lagging more than others is sunflowers harvested, at only 65% complete vs. 85% normally at this time. Winter wheat is 89% emerged vs. 85% normally, with ratings dropping 2% to 63% rated G/E, still a very high rating.
South American weather is calling for more precip in Argentina in today's 14 day weather runs, which would be beneficial for the crop. Recently, Brazil has had plenty of moisture, but Argentina moisture has been more lacking. The soybean/corn price ratio favors planting soybeans so much at 3.06 in nearby futures that its likely more corn acreage in SAM will be switched to soybeans.
Pro Ag remains bearish, but less so in corn as we've taken off 50% of hedges at $4.25 Dec and $4.26 Dec (25% each). Final Pro Ag downside price targets had been $4.25 Dec corn (which was hit last week), $11-$11.10 Jan. soybeans, and $6 CBOT wheat. With continued weakness in corn, lets take off another 25% of hedges at $4.11 Dec corn or better.
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