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2013 Bi-Weekly Market Briefings

WHO IS DRIVING THE COMMODITY MARKETS?

During the fall of 2012, we saw tight corn supplies dominate the commodity markets, and so, as corn went, so did the other commodities. Fast forward to 2013. Now we are looking at a situation where corn supplies are expected rebound and end the year with stocks at 1.837 billion bushels, compared to 719 million bushels in 2012. At the same time, soybean supplies remain tight, with only 220 million bushels forecast at the end of 2013-14. While corn prices led the way to higher prices last year, the question for this year is, will corn continue to drag commodity prices lower or will strength in the soybean market be able support other commodity markets?

The USDA August Supply and Demand Report released on Aug. 12 was highly anticipated by the market as this is the first look at survey estimates for yields. Additionally, the USDA would release the data from their resurveying of soybean acreage following the June Acreage report. While the report had a number of surprises, probably the biggest surprise was the amount of decline in soybean production and a reduction in national average corn yield to 154.4 bushels per acre, both at or below pretrade estimates. After the report was released, soybean prices rocketed higher, while gains in the corn market were much less than one would expect given yields were expected to increase to 157.7 bushels, instead of decline given the favorable weather experienced the last few weeks in the Midwest.

Strength in both markets fizzled quickly, with soybean gains becoming more modest and corn prices putting in new lows in the days following the report. The corn market, in particular, will likely continue declining in coming weeks as the market searches for a bottom. While the USDA is forecasting yield declines in their report this month, it doesn’t appear the market really believes those numbers and is still looking for a yield closer to 160 bushels per acre. Given that we are already seeing cash prices for corn at just over $4.00, if these expectations for 160 bushels per acre hold, producers will see a corn price with a 3 in front of it as harvest gets underway. If storage is an option, this will likely be a good year to utilize it for your corn as we are likely to see lows for this market be put in sometime in September or October, depending on when harvest gets into full steam in the Midwest.

As for soybeans, fundamentals are likely to become increasingly bullish for this crop as we move closer to harvest. The lateness of this crop is likely to impact soybeans much more than it appears to have affected corn. Additionally, soybeans face much more chance of frost damage as they will come off later than corn. With the bearish supply situation in corn, wheat and rice, these markets will need soybeans to maintain their strength to help minimize losses in these markets. The major threat to soybean prices at this time is South America. Now is the time when producers in Brazil and Argentina are beginning to make planting decisions for the 2013-14 crop. With the current weakness in corn prices, we are likely to see additional acreage go into soybeans in South America. These additional supplies from South America will alleviate U.S. production shortfalls on the global market, thus adding additional pressure on soybean prices.

In addition to tightening soybean supplies, the USDA also raised the season average price for soybeans 60 cents to $11.35 per bushel. This compares to only a 10-cent increase in corn to $4.90, a 50-cent reduction in long-grain rice prices to $14.50, and cotton prices unchanged at 80 cents. These prices are very interesting to Arkansas agriculture as producers have the ability to plant any combination of these crops they desire. If these prices hold, that may suggest a much different crop mix in 2014.

If you are a livestock producer, today’s commodity market is offering a good opportunity to forward contract feed ingredients for this winter. Lows for all the major feed ingredients will likely be made during the next two months. While grain producers will likely try to store what they haven’t already priced, you will have a great opportunity to price feed at levels not seen since 2010. While feed prices are forecast to decline, tight cattle supplies are likely to continue to support cattle prices this fall and into the winter. Live cattle prices have continued to climb since the first of August and are poised to try and fill the gap left back in May. To fill this gap, prices need to close at $128. If this objective is met, prices will likely move toward resistance at $130. Live cattle prices maintain strong support at $120.

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