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USDA report follow-up: 'Race to maturity' is on for corn, soybeans

Agriculture.com Staff 09/11/2009 @ 8:56am

The crops are getting larger, but demand for U.S. corn and soybeans is growing too, making Friday's USDA reports a largely neutral exercise for the grain trade moving toward harvest.

But, that's not to say things won't change after Friday's USDA numbers that showed larger corn and soybean crops (See the full Crop Production report). With a lot of acres still needing time to mature before the combines roll this fall, how the "race to maturity" ends up will have a lot to do with corn and soybean prices moving forward, analysts say.

"It will boil down to some large crops, but can we reach maturity, the level where the crop is safe?" says Don Roose of U.S. Commodities in West Des Moines, Iowa. "You have to make some assumptions that these numbers will change. Big crops do get bigger, and we expect that to happen in the corn market. The bottom line is that production went up and demand went up.

"Really, it's a race to the finish now."

The soybean production figure -- which was pegged up 1% from last month's USDA report at 3.25 billion bushels -- is the biggest wildcard moving ahead into fall, adds Jim Bower of Bower Trading in Chicago. And, with beans still in high demand on the export market and acres being trimmed in places like Argentina, the bean market is likely the pit to watch moving forward.

"I'm still not totally convinced that we know the soybean yield," Bower says. "I think we have to be really careful with the soybean number until they come off the combine.

"As we bring prices lower, we're starting to stimulate some demand."

Bower says a large bean crop, combined with existing carryout stocks, could take November beans down below $9, but continued strong demand will make it tough for the market to stay below that point for long (See Friday's USDA Supply/Demand report).

"If beans come in with a higher yield than we think, I don't think the market can hold a $9 level. If you break $8.80, you would drop down to $8.37," Bower adds. "I don't think we'll get that low; demand from old crop to new crop is pretty strong."

With acreage decisions still largely up in the air in places like Argentina -- where both Bower and Roose expect more soybeans will be planted on what ordinarily would be corn acres -- acreage and marketing decisions should largely be based on gross income per acre, not true marketing, both analysts say.

"For years, we've made large-scale attempts to avoid the trading decisions as much as we can, instead marketing crops based on return on investments," Bower says. "If you look at returns, taking into account production costs, there's no reason why you should not be selling that crop, then defending it with a call. The decision should not be a trading decision. If you're above return on investment, why are you not selling and defending it with a call?"

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