Take a look at ag's big picture in 2010
Who would have believed in June last year that the final USDA crop report would project the U.S. corn crop at a record 165.2 bushels per acre?
What will the size of the U.S. corn crop be in 2010 if we have anywhere close to a normal growing season? How low can grain prices trade over the next 30 to 60 days?
Comparing this year’s January report to last year, the overall picture is fundamentally more bearish for soybeans if you look at World Carryout. Due to the surprise jump in corn production we are limit down in corn today with beans down 30 cents as well. I think it is important to look at the big picture in 2010.
The U.S. will soon enter the Spring insurance pricing as February begins. Last year a bearish January report caused corn to sell off 90 cents and beans to sell off $2 per bushel into the first week of March.
As long as South America continues to look like they will produce a large bean crop, I believe the market will focus on motivating the U.S. producer to keep corn acreage at a high level since the World Carryout for corn is at 16.9 percent of usage, compared to 17.4 percent last year.
We must also remember that crude oil traded between $35 and $50 in the first three months of 2009. With crude over $80, I believe corn will have better support than soybeans as we move into February. Does this mean I think corn is going up? No. I believe we may see December 2010 corn and November 2010 beans trade at a ratio closer to 2:1. Last year we set Spring prices at $8.80 and $4.04, a ratio of 2.18:1. In 2007 it was exactly 2:1 with $4.06 for corn and $8.09 for beans and that ratio triggered 93 million acres of corn.
For the rest of this column, see the Jan. 21 Galva News.