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Ron and Sue Mortensen: Now what?

01/14/2011 @ 3:30pm

Almost every number that the USDA released yesterday was smaller than expected.  Both the corn crop and the bean crop were smaller.  The stocks numbers were small.  The ending carryouts were small.  Only the winter wheat seedings were as expected.  

With small numbers comes the realization that demand rationing will be required to make it to the next crop.  Price will need to be high enough to reduce demand or to cause buyers to wait for cheaper (new crop?) supplies.  For corn, will it be ethanol, feed, exports?  Every category of use is vulnerable.  It will be a question of who blinks first.  

At least for corn there is the probability of larger planted acreage in the spring of 2011.  Early surveys have shown 2-3 million more corn acres in the coming crop year.

It’s the same rationing discussion for soybeans.  On the surface, the bean balance sheet does not look that tight.  Two years ago, the carryout was 138 million bushels and last year it was 150 million bushels.  Yesterday’s estimate of 140 million bushels is in the range of what the market is used to, although the percentages are tighter.  Two years ago, the stocks to use ratio was 4.5 percent.  For this crop year, it’s 4.2 percent.  However, many analysts have much higher numbers for exports.  With yesterday’s smaller crop, it looks like exports can’t grow as much as anticipated.  The US can’t export what it does not have.  Therefore, Brazil will need to be a main supplier for soybean buyers in the spring/summer.  

For soybeans, it also looks like it will be difficult to have adequate supplies in the coming year.  Acreage surveys have shown the US farmer is not likely to increase soy plantings this year.  Rationing may be required two years in a row-or South America will need to step up and increase acres during their next crop year.     

The risk of loss in trading commodities can be substantial.  You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.  

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