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RJO Market Commentary

This fall's cold, wet weather caused the slowest U.S. harvest since the 1970s, which prompted the USDA to decrease the year's corn crop expectations while boosting the U.S. soybean output outlook on the Nov. 10 production report. It also increased both world wheat supplies and U.S. wheat ending stocks as foreign demand remains sluggish.

With this season's below-normal temperatures slowing corn's maturity and a killing freeze hitting the northern growing areas a month ago, the USDA dropped the national yield 1.3 bu. to 162.9 bu. this month, resulting in a 97 million bu. decline in output to 12.92 billion bu. Yields were reduced in Iowa (-5 bu.) and Illinois (-4 bu.), but the minimal level of the year's harvest (25%) and widespread reports of low test corn weight suggests 2009's final crop size, released in January, could slip further. The USDA cut U.S. corn export demand again by 50 million because of recent slow overseas sales, resulting in the coming year's ending stocks slipping to 1.625 billion bu. in November. The USDA didn't adjust new-crop ethanol or feed demand, but if this year's test weight reports continue on the low side this could surface as higher usage later in the marketing year.

In soybeans, the USDA raised the U.S. crop by 69 million bu. to 3.32 billion bu. as the national yield rose to 43.3 bu. This fall's normal to slightly late freeze in the northern growing areas was behind this rise, with the Eastern Corn Belt and Western Corn Belt's average regional yields both up 1.8 bu. to 45.1 bu. and 44.5 bu., respectively. The Southeast and Delta yields were cut, however, with yields in the two largest producing states, Arkansas (-1 bu.) and Missouri (-3 bu.) affected by heavy rains during October. The government raised its demand levels by 5 million bu. for processing and 20 million bu. for exports because of the record foreign sales already on the books. However, 2009/10 ending stocks still rose 40 million bu. to 270 million on this week's report. The USDA also increased prospects in both Brazil (+1 mmt to 63 mmt) and Argentina (+0.5 mmt to 53 mmt), due to an increase in harvested area by 200,000 and 250,000 hectares, respectively.

The resurvey of this year's spring and durum output revealed producers didn't harvest 190,000 acres of their crops because of the late harvest of the year. Still, 2009 spring and durum outputs were sliced by only 3 million bu. and 1 million bu., respectively, and their yields also rose. In addition the USDA increased their world expectations this month, led by a 4.5 mmt increase in the FSU's crops. This prompted another increase in wheat's very substantial stocks to 188.3 mmt, the highest level in eight years.

The actions of the US dollar, crude oil and precious metals, along with this year's late-season weather, will be the determining factors for corn and soybean price potential over the next three to four weeks as these markets enter their post-harvest period. We continue to suggest that producers complete sales for 50% of corn, 60% of soybeans and 65% of wheat. We also recommend beginning 2009/10 corn and soybean marketing with 10% cash sales at current 2010 new-crop prices. Winter wheat producers should also begin 2010/11 marketing with a 15% sale, basis Kansas City July, in the $5.75-$5.95 range.