Many factors play a role in determining price levels for corn and soybeans including weather forecasts, oil prices, export demand as well as national and international news headlines. There will be another major factor released this week which will provide plenty more fodder for trading.
The USDA’s Prospective Plantings report set for release March 31, will set the market tone for roughly a month following its release, according to risk management specialist Joe Kerns, International Agribusiness Group, Ames, Iowa. Traders rely on the report to portray the best summary of the acreage that farmers have committed to major grain and oilseed crops.
The report is complex and controversial. “Many farmers will renew their complaints and their misunderstandings of the process of data collection,” says Stu Ellis on farmgateblog.com. “The March 31 report will involve more than 80,000 farmers who are asked for their estimate of acreage to be planted. USDA statisticians know any biases that farmers may report, and are ready to apply corrective calculations to put the data back on track.”
According to Kerns, “The report will provide a new baseline for corn and soybean trading decisions and market participants need to be cognizant of the report’s significance.” In addition, the Grain Stocks report to be released at the same time will provide traders an account of current supplies which are estimated to be one of the lowest on record at the end of the crop year.
China demand and the likelihood of flooding in the upper Midwest also bear close watching, says Kerns.
The corn market has shown great resilience of late and any pullbacks have been short-lived. With approximately 40 percent of current U.S. corn production consumed by the ethanol industry, Kerns does not see demand slackening. “It’s as if the government has already determined who will eat at the head of the line and, with the mandate, has placed ethanol-as-fuel in front of animal agriculture.”
As with rising prices on any commodity, rationing will eventually play a bigger role. If oil prices continue in the area they are currently, Kerns doesn’t expect to see rationing by the ethanol industry until corn is trading in the $7.50 to $8.00 per bushel range.
Kerns says that in order to keep corn prices in check, the 2011 U.S. crop must meet the trend-line yield of 163 bushels per acre and warns of higher prices if that level isn’t achieved. That would be the second highest corn yield in history. “Anything short of this will result in more upward price pressure.”
Soybean prices may trade higher after the USDA report is released. “The soybean crop may not receive adequate planting commitment due to its price relationship with corn,” says Kerns. “Beans would like more acres, but to get them, they have to fight the corn economics. The world appetite for soy is increasing faster than our ability to produce it. Prices will keep charging higher until the market has assurance that a good crop is highly probable.”
“Having security on the selling price of your hogs at today’s profitable levels as well as coverage for inputs continues to be a very important risk management strategy.”