Grains Outlook- An Excerpt from CRB'S Futures Market Service

CORN

Corn prices resumed their 2-month rally as they catapulted to a 14-1/2 month high.  Bullish factors include (1) increased ethanol blending in gasoline after the Energy Department reported that ethanol as a gasoline component  rose to a record 810,000 barrels a day in the week ended Aug 20, and (2) strong foreign demand for US corn after the USDA said sales of US corn in the 2 weeks ended Aug 19 was 3.987 million tons, the biggest 2-week total since at least 1990.  Bearish factors include (1) quick development of the US corn crop which may enable an early harvest with 17% of corn mature as of Aug 29, 6 points ahead of the 5-yr average of 11%, and (2)  the prediction from the corn growers association of Argentina, the world's second-largest corn exporter, that increased plantings may produce a record Argentine corn crop next year of 26 million

Weekly Crop Progress report (week ended Aug 29):  70% of the crop is in good-to-excellent condition (unchanged w/w and +1 point y/y). 

Weekly Corn Exports (week ended Aug 26): 1,142.2 MT; 2009/10 (Sep-Aug) cumulative exports are up +7% y/y.

Fundamental Outlook—Near-term Bullish—Corn prices resumed their rally up to new highs.  Strong foreign demand and strong domestic demand (ethanol) continues to boosts prices as the projected stocks/use ratio of 9.7%, the second tightest level in a decade,  indicates relatively scarce corn supply.  However, prices may struggle to push much higher as a rapidly maturing corn crop may mean an early harvest of an expected record US corn crop.

SOYBEANS

Soybean prices are consolidating moderately below last month’s 1-year high.  Bearish factors include (1) reduced concern that the recent excessive heat in the central US damaged the soybean crop after the latest weekly soybean crop conditions report was unchanged w/w, (2) slack domestic demand for soybean products after July US soybean meal inventories jumped +21% y/y and July US soybean-oil inventories climbed to their highest level in 6-1/2 years, and (3) the USDA’s Aug 12 hike in its US soybean production estimate to a record 3.433 bln bushels, up from 3.345 bln forecasted in July.  Bullish factors include (1) the recent slide in the dollar index to a 2-week low which may boost US soybean export prospects, (2) strong Chinese demand after the USDA reported that total Chinese soybean imports from Jan-July rose 16% y/y to 30.75 million tons,  (3) the USDA’s Aug 12 hike to its global soybean consumption estimate to a record 250.9 MT, up from 247.6 MT forecast in July.

Weekly Crop Progress (week ended Aug 29):  64% of the crop is in good-to-excellent condition (unchanged w/w and -5 pts y/y).

Weekly US soybean exports (week ended Aug 26): 234.6 MT; 2009/10 (Sep-Aug) cumulative exports are up +17% y/y.

Fundamental Outlook—Bull Market Correction —Soybean prices are consolidating below last month’s 1-year high.  The near-term price action continues to be dictated by the weather and any further increases in Chinese demand.  The US supply picture remains plentiful with the USDA forecasting the largest US soybean crop in history this year (3.433 bln bu) and US 2010/11 carry-over at a 4-year high of 360 mln bushels.

WHEAT

Wheat prices continue to consolidate well below last month’s 2-year high.  Wheat prices had jumped to a 2-year high of $8.68 a bushel, up 84% since June, on concern that the worst drought in Russia since record-keeping started 130 years ago may limit global supplies, but have since corrected lower by over $1.89 a bushel (22%).  Bearish factors include (1) the prediction from Farm Futures that US winter wheat plantings may rise to 41.7 mln acres this year, up +10% y/y, (2) comments from Russian Agricultural Minister Skrynnik that Russia has enough grain to meet its estimated domestic demand of 77-78 MMT this year, and (3) speculation that recent rains will improve wheat crop prospects in the US and Australia and boost global wheat supplies.  Bullish factors include (1) the UN FAO’s further reduction in its global wheat production estimate for this year to 646 MMT from its 651 MMT forecast last month and 677 MMT forecast in June, (2) excessive rains in eastern Europe which are slowing its wheat harvest, and (3) USDA’s Aug 12 cut to its global wheat production estimate for the year that began Jun 1 to a 3-year low of 645.7 MMT from a July estimate of 661.1 MMT. 

Weekly Crop Progress (week ended Aug 29): Spring wheat 69% harvested (-6 pts below the 5-year average of 75%).
Weekly US wheat exports (week ended Aug 19):  503.1 MT; cumulative 2010/11 (June-May) all-wheat exports: +33% y/y.

Fundamental Outlook—Bull Market Correction —Wheat prices are consolidating well below last month’s 2-year high as the panic buying has stopped.  The US wheat supply situation remains heavy despite the USDA’s cut on Aug 12 of its global production estimate to a 3-year low and its high in US export estimates.

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