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Will Traders Finally Start to Buy?

The January Supply and Demand report this year may be more noted for what it didn't say than what it did say. What the USDA report didn't provide is another bearish surprise for the corn market. By most all accounts, the report was considered neutral for corn and perhaps slightly friendly for beans. Yet, from a longer-term perspective, the lack of negative news may give traders and end users reason and confidence to finally step in front of bear markets and buy.

The final crop production estimate for corn is 13.601 billion bushels, a full 800 million bushels less than last year's record 14.216 billion. Smaller acreage compared to the previous year by over 2 million, and a smaller yield at 168.4 compared to the average estimate of 169.2 and last year’s of 171, helped to confirm a smaller crop than a year ago. Yet, due to reductions in demand, projected carryout at 1.802 billion is still larger than last year's 1.731. Nonetheless, the year-to-year change in carryout is almost a non-event, and ultimately would suggest that 2016 could be a critical year for the corn market. Slightly supportive was the world expected carryout, which came in underneath even the lowest estimate at 208.9 million metric tons. The average pre-report estimate was 213.1. This is a decrease of just about 2%.

With corn prices currently trading near $3.80 on December new crop, there doesn't appear to be much incentive for farmers to either plant more acres or (what we would term) "juice the crop" with extra inputs to push yields. We're also wondering just how willing the financial community will be in its lending practices to farmers. The general feel is that lenders, at a minimum, are cautious. We don't see corn acreage increasing unless prices recover within the next 90 days.

Beans were supported due to a decrease of 31 million bushels for projected carryout from expectations, and 25 million bushels less than the December report. Yet, at 440 million, this number is still significantly larger than the previous year's 191 million. Harvested acres at 81.8 million were slightly less than the pre-report average of 82.4 million. All is relative though, and it will take a continued solid yield in beans again in the year ahead to maintain 440 million bushels of carryout. Should yield be off, say three bushels an acre, this would reduce carryout to a snugger 290 million and a potential price increase to $10 or higher.

Lastly, in wheat, the market dealt with mixed numbers. On the world front, projected carryout rose to 232 million metric tons which was above the December estimate of 229.9 million. Yet, acreage in the U.S. was viewed as supportive, coming in less than expected with all winter wheat acreage at 36.6 million acres versus an average pre-report estimate of 39.3. After the report, the market responded with a gain of more than 10 cents.

As the growing season approaches, 2016 could be very interesting, especially with the strong El Niño pattern that has developed. Should this El Niño switch to La Niña, it could create an interesting production scenario for 2016.  Warmer and dryer weather could be a pattern by mid-summer. Preparation will be critical. You will need to sell responsibly on a rally. Strategize now to have coverage in place should the opposite scenario of the last three years occur, and a strong weather-related bull market is witnessed.

If you have questions or comments, or would like a balanced strategy for your operation contact Top Farmer Intelligence at 1-800-TOP-FARM ext 129.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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