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Still plenty of fuel left in bullish market

USDA's Sept. 12 crop production report might have overestimated the size of the U.S. corn and soybean crops, according to analysts. But there's still plenty of fuel left in the bull market.

In the estimates, USDA projected soybean production at 2.656 billion bushels, up slightly from last month's total of 2.628 billion bushels and down from last year's 2.891 billion bushels.

Based on Sept. 1 conditions, yields are expected to average 37 bushels per acre, up 0.5 bushel from last month. If realized, this would be the lowest production since 1999.

USDA's World Agricultural Supply-Demand Estimates projected soybean ending stocks at 160 million bushels, up 5 million bushels from last month, but still the lowest level since 1996/97.

USDA estimated U.S. corn production at 8.849 billion bushels, down slightly from last month's total of 8.886 billion bushels and down 7 percent from last year's total. Based on conditions as of Sept. 1, yields are expected to average 125.4 bushels per acre, up 0.2 bushel from August but down 12.8 bushels from last year. If realized, both the yield and production would be at their lowest levels since 1995.

Projected U.S. 2002/03 ending stocks of corn at 729 million bushels, down 37 million bushels from last month due to lower forecast production.

Meanwhile wheat price prospects continue to brighten as USDA lowered its ending stocks estimate for 2002/03 by 60 million bushels, based on expanding use and lower imports.

“In the long run, we are looking at a bull market in corn,” said Terry Roggensack, an analyst with Hartfield Management, Inc., who spoke at a press briefing on the report at the Chicago Board of Trade.

“The ability of the market to restrain demand will become a bigger and bigger factor in the coming year.”

In both corn and beans “we have to find where commercials come in and support the market — $2.87, maybe all the way down to $2.77 on December corn and $5.67 to $5.81 for November beans,” Roggensack said. “A good objective for November beans is $6.23 and $3.07 to $3.19 for December corn.”

Adding to the support is the belief in the trade and on farms that contrary to USDA's report, U.S. corn and soybean crops are actually shrinking and that demand is increasing. “I think we're looking at USDA numbers that are designed to appease the marketplace,” said John Welsh, senior vice president of Peregrine Financial Group.

“At the beginning of this year, there wasn't anyone who expected less than 10 billion bushels of usage in corn. Now suddenly, USDA is projecting that we're only going to use 9.77 billion bushels.

“I wonder what happened. It's curious to me that that occurs like that. So is USDA's figure of 460,000 acres of abandonment in corn. I bet there's at least a million acres of abandonment in Kansas alone.

“USDA has a tendency to calm us all down with numbers and has a tendency to be wrong,” Welsh said. “They were wrong all last year in their export projections, dead wrong. I'm still very perplexed about their projections of a reduction in usage for corn.

“To me, it looks like the market is trying to recover to a better price level. If I was a betting man, I'd bet the final numbers for corn production is closer to 8 billion bushels than 9 billion.

According to Roggensack, “The focus for soybeans will remain on U.S. yield numbers over the next three or four weeks and then the attention is going to shift to the South American situation. USDA has already plugged in an enormous increase in soybean production from record high levels. Achieving that is going to be quite a task. They will need good weather and improving economic situations to produce the crop.”


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