What a year! Last December I released my 2009 grain forecast in the middle of the worst economic collapse of recent times. I laid out a picture of world demand for high protein crops, feed grains for feed and fuel with a rally into spring and summer.
The national media referred to me as a contrarian to the industry as the rest of the trade all called for a world-wide recession and lower grain demand. Corn was trading at 3.20 - my projection was 4.60 to 5.25. Our high was over 4.70. In beans, we were trading at 8.00 and I projected $10 to $11 spring prices, and $13 summer growing season high. The high was 12.50; wheat was trading at 5.00 and I projected 7.50 to 8.75. Wheat on the Kansas City Wheat Exchange hit 7.40. The Spring Wheat Exchange in Minneapolis hit 7.95 and the Chicago Exchange 6.80.
Those who grasped the report and its research led the industry in understanding and had the opportunity of a lifetime to maximize their trading skills. We are currently finishing the 2010 Outlook for P.F.G. and it should be out as the new year enters. I hope you read it and use the basis of its meaning as the foundation and springboard for your trading strategy. Of course, it's the weekly updates we will use to fine tune our trades and risk management.
That being said, let's get back to the near-term. The first 12 days of January will be very volatile as it always is as new year money allocations swarm about. Corn has one major thought that should take control and that is the fear of how the January 12, 2010, U.S.D.A. monthly crop report will come out. The fear will be how big a cut in production will the government serve up. The last government report on production of this year's crop was November 11, 2009, projecting 12.921 billion bushels - down 97 m.b. from the October report. The numbers were compiled up to November 1, 2009. The two weeks after, the government lowered corn's quality level on their weekly crop condition reports, the last of the year, to 67% in good-to-excellent condition, the lowest rating of the year.
Since November 1, 2009 to date, the weather has been nothing short of miserable. An early October frost and freeze left 25% of our corn not to reach full maturity and at the writing of this report we have 500 to 700 M.B. sitting in the fields under a foot or more of snow with potential to not be harvested until spring. One must assume further yield losses. This all sets up the fear that the government may make a measurable production cut. No one will want to be short ahead of its release while speculators buy long. It is not what the report actually says, but the fear of what it could say that will firm corn prices higher ahead of it. One private analytical firm cut its estimate from November by 670 m.b. The pre-report estimates will range from mildly bearish to very bullish. The December report put ending-stocks at 1.675 b.b., any production losses come off the top of ending stocks. The trade is in a false sense of security over ending stocks. That number is one drought away from being zero. So, lower ending stocks creates a near and longer-term bullish scenario.
Soybeans near-term don't see a chance for a big or measurable production cut as less than 10% of the bean crop was yet to fully mature when the early October freeze hit, but it's a demand-driven market and the trade believes demand is greater than the current government estimates. Last month, the U.S.D.A. lowered our projected ending-stocks to 255 m.b.; down 15 m.b. from the month prior. The trade will look for another 10 to 30 m.b. cut on the January report even without a production drop. That's the fear not the fact. Markets trade fear first. Soybean sales are at 84% of the projected government sales for the marketing year September 1 to September 1. The month of December so far, is off 493 T.M.T. versus November, but it's the slower holiday month with port and shipping closes, This weeks sales should push us over November and a record for December.
Longer term through March, China's grain council estimates bean imports up in the first quarter by 15% over a year ago. This further takes away potential for China to cancel some previous U.S. purchases for future delivery and rebuy on South American ports as their crop comes in. With China looking to fill storage bins for their strategic grain reserve in 2010, and Argentina and Brazil looking to hold beans and corn back this year to build reserves on a goal to be a reliable yearly exporter, versus a seasonal supplier, we have to expect China to keep all purchased and buy on all ports.
Between January 4 and 12, I look for March corn to take out the 4.24 resistance and with a bullish report test 4.40 or higher. March beans should push through 10.60 and hit 11.10 if the report comes in bullish.