| December 17, 2010 | Archived Issues |
The USDA made very few changes to supply/demand projections in the December World Agricultural Supply and Demand Estimates (WASDE) report. The only changes for 2010- 11 corn/soybean projections were a five million bushels increase in corn imports from Canada and twenty million bushels increase in soybean exports. No changes were made to the USDA’s price forecasts (corn from $4.80 to $5.60, soybeans from $10.70 to $12.20). Market analysts will now have to wait until January for expected changes to production estimates and use projections. Without any significant change to supply/demand fundamental information, outside markets (dollar value, energy prices, etc.) and technical (chart) factors have largely influenced market price action since the report.
March 2011 corn futures prices continue the price chart uptrend that began last July. An uptrend is a technical signal (price action or chart signal) that prices are continuing higher. Some market analysts continue to forecast the possibility of higher prices into the New Year and the continuing price uptrend appears support those opinions. However, it is also important to remember that when prices approached $6.00 in early November, feed and export buying seemed to slow contributing to a downward price reversal. After declining nearly ninety-cents, prices have resumed the uptrend. But for the chart uptrend to continue, prices will need to move above the November highs ($6.17 ½ March ’11 corn). Failure to set new highs or breaking of the chart uptrend would produce a technical signal that the up move could be finished.
Although prices might go higher, it seems safe to say current prices offer opportunities. Cash corn bids at many locations across Missouri offer prices in the upper one-half or above the USDA’s forecast price range. This suggests adding to sales of 2010 production. For those wanting to continue following the uptrend, it is important to watch price action near $6.00 closely. It may pay to delay sales until the New Year, but price reversal signals or breaking of the uptrend line should trigger sales whenever they occur at these price levels.
March 2011 soybean futures prices have also been in an uptrend since July and the trend has been stronger since early October. Soybean prices retreated more than one-dollar after setting a high in November, but the chart uptrend is still in place. They have since recovered most of the loss and appear poised to challenge the high near $13.50 in the March ’11 contract. If this high is exceeded it would signal that the price uptrend may continue. Failure to exceed the high or a price reversal that breaks the uptrend would suggest lower prices. Soybean export sales and South American weather will be important supply/demand factors to watch for market direction as the New Year begins.
Although the price uptrend appears to continue, current soybean cash bids offer opportunities. Soybean bids at most Missouri locations are above the top of the USDA’s currently forecast price range of $10.70 to $12.20. If sales are delayed, it will be important to watch price action near $13.50 to $13.60 in March futures prices. Failure to move higher than this or breaking of the uptrend would be signals to add to sales before prices move lower.
Will the markets "bid for acres" in 2011? This has been the subject of several marketing articles and much discussion by market analysts. With projected corn carryover of 832 million bushels and soybean ending stocks of 165 million bushels, more production is desired in 2011. Wheat and cotton acres are expected to increase as well. This suggests that the markets need to bid up corn and/or soybean prices to attract more planted acres. However, it should be noted that bidding for acres doesn’t necessarily mean higher prices, it also occurs when the price of one does not decline as much as the other.
Current futures prices suggest a soybean/corn price ratio of about 2.2:1 to 2.3:1. While this might still give soybean production a slight edge for Missouri producers, it is about breakeven or a slight edge to corn for much of the Corn Belt. As the New Year begins, some analysts will be watching this ratio closely as a market signal for 2011-12 supply/demand expectations.
New Crop (2011 production) futures prices suggest potential pricing opportunities. University of Missouri--FAPRI 2011 crop budgets project breakeven prices for Missouri crop production. These budgets are available at: www.fapri.missouri.edu. There is also a "Crop Budget Generator" spreadsheet available at this web site that allows budgets to be customized to fit individual farms or production systems. These budgets suggest price needed to recover total cost of production for corn is nearly $3.40 and soybeans about $6.80. Wheat breakeven price is estimated to be $5.80. Current new crop December corn and November soybean futures prices are well above the projected Missouri budget breakeven prices and above many early forecasts for average 2011-12 corn and soybean prices.
December 2011 corn futures posted a high of $5.65 before declining more than eighty- cents in November. Prices have remained volatile, but have recovered to more than $5.30. Futures prices for this contract are also in an uptrend, but will need to move above the early November high to confirm that the uptrend is intact. In addition to any bidding for acres, a number of factors (ethanol use, exports, dollar value, energy prices, fund trading, etc.) will continue to influence new crop corn prices in the New Year. Current prices offer excellent profit opportunities and consideration should be given to putting in place strategies that protect these prices.
November 2011 soybean futures prices also far exceed projected budget breakeven prices. After posting a high of $12.73, prices declined about $1.75 before recovering to current price levels above $12.00. Prices remain in an uptrend. But with prices more than $4.00 above breakeven, consider market strategies to protect some of these potential profits regardless of price expectations.
July wheat futures prices, even with very weak SRW wheat basis, suggest profit opportunities. This is especially true if double crop soybeans are planted following wheat harvest. Protecting some of these profits also seems to be a good strategy to consider.
Looking ahead toward the New Year, current market prices suggest it could be a good year. However, volatile prices with large price moves are also likely. It will be important to follow markets closely and put in place flexible marketing strategies that protect pricing opportunities whenever they are offered.