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Yield trend key to grain prices

The soybean and corn markets could turn bearish or bullish, depending on yield trends, but the cotton market appears strong any way you look at it, says market analyst Richard Brock, president of Brock Associates, speaking at an ag update session at the Mid-South Farm and Gin Show.

Brock is projecting corn plantings of 89.5 million acres, an increase over the 86.5 million acres planted in 2009, despite what could be fewer corn acres in Iowa and the Mid-South, as growers return to soybeans and cotton, respectively.

“Growers in Iowa have been going with corn after corn for several years and yields have suffered, so they’re going back to soybeans.”

He added that a bull market in cotton is behind a potential slight shift from corn to cotton in the Mid-South.

Brock said the national average yield for corn in 2009 was significantly higher than the five-year yield trend would indicate, one reason why he is projecting a nearly 3-bushel jump for 2010, to 168 bushels per acre. “There are arguments as to whether the increases are due to improved genetics, or the fact that we had one of the coolest Julys in history, and corn does better when temperatures are cool. I’m in the camp that it’s coming from genetics.”

If 89.5 million acres are planted in the United States and average yield is 168 bushels per acre, carryover jumps to 2 billion bushels, compared to 1.6 billion bushels in 2009-10, “even though ethanol usage is going to 4.5 billion bushels. Our yield is ramping up faster than ethanol usage. Even if we ramp up to 5 billion bushels of ethanol usage in 2012, carryover keeps going up. It’s hard to be a super bull in corn over the long term.”

If producers plant 89 million acres and trend yields stay flat, at 164 bushels, carryover drops to 1.5 billion bushels and this portends an average price of around $4 a bushel. “Under that scenario, corn is underpriced right now. If growers plant 90 million acres and yields come in at 172 bushels, we’re looking at an almost 2.5 million-bushel carryover, and corn is 75 cents overpriced right now.”

Brock sees soybean plantings of about 77 million acres in 2010, which with an average yield of 45 bushels per acre would push carryover from 210 million bushels to 340 million bushels and prices could range from $7.75 to $9.

Under a more bullish scenario of 76 million acres planted and a yield of 43 bushels per acre, soybean ending stocks could drop dramatically “and there’s another $1.50 in this market to the upside.”

A more bearish scenario of 77.5 million acres planted and a 46-bushel yield would push soybean carryout to 483 million bushels, and push prices to $7.50 to $8.50.

Bullish news behind soybean prices have to start with exports, “which are at an all-time high,” Brock said. Nonetheless, “we’re starting to build inventories in soybeans.”

Despite the bullishness for soybeans, Midwest farmers “can’t come close (with soybeans) to the net returns they can get for corn. Now, some banks may not loan farmers as big an operating line as the year before, and it takes a lot less to put in an acre of soybeans versus corn.”

Globally, the world stocks-to-use ratio for soybeans is at 25.2 percent, the second highest ratio since 1996.

“The bull in the china shop has been China, which imports 54 percent of the world’s exported soybeans. The United States has 46 percent of the world’s export share, Brazil 31 percent, and Argentina, 10 percent.”

Brock urges growers to keep expectations in check with soybean prices.

“You may think soybeans prices are cheap, but over the last five years, these are not cheap prices. These are high-priced beans, and with yield increases we’re seeing, we’re looking at very profitable soybeans. So don’t sit and stare and hope it goes to some ridiculously high number. Be realistic. My target zone for September soybeans would be somewhere between $9.75 and $10.10. Have your shotgun loaded and when it gets there, start pulling the trigger.”

Brock says the big bull in the cotton market is the depletion of excessive U.S. and world carryover stocks. “We’re going from 6.3 million bales down to 3.3 million bales in the United States, and no matter how I slice the planted acreage this year, I don’t see the carryover increasing.

“We’re going to see a relatively tight supply here for the next three years. I see acres climbing to 10.4 million and profitability remaining high enough to maintain those acres.”

Cotton planted acres were at a 20-year low in 2009, “so even 10.4 million acres is still way down from where we were. The worldwide stocks-to-use ratios for cotton are at 20 year lows, so this is a market that should be able to sustain these price levels for a good long time.

“Cotton is also an inverted market. Nearby futures are trading higher than the deferred. That’s a situation for a bull market. My feeling is that the bull market is not over. There was a forecast for dollar cotton, but you sell a market when it’s time to sell. Maybe it will be a dollar.

“My feeling is that in this type of a market, if you get into new highs into springtime, you’ll have the annual top in the market before you get the crop planted. Remember, the markets always peak when the news is most bullish.

“This is a supply-driven bull market. If we have any kind of issues when this crop is being planted, my guess is before you’re through planting, we’ll have a spiked top. But at this time, it’s too early to tell where that’s going to be.”


TAGS: Outlook
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