2010 market expectations
Jan 7, 2010 8:00 AM, By Ray Nabors, Heartland Ag Network
We start the year with the smallest hog heard in three years. Hogs on feed are down another 2 percent below last year.
Cattle on feed are up 0.5 percent, but cattle placed on feed are down 3.5 percent over last year’s already low level.
Chicken production is up sharply in Asia but less in North America.
Feed use remains the most common use for grain and meal. Current corn and soybean prices are cost-prohibitive for animal feed. With unemployment expected to remain near 10 percent, is not expected that meat consumption will rise.
Grain and oilseed prices are increasing because of increased demand from Asia. Eventually our food prices will rise as grain and oilseed exports increase. World grain and oilseed supplies are tight and becoming more limited. Dollar values are lower than last year and could remain export friendly.
Record South American production will pressure grain prices. Acres are expected to increase in the United States. Many acres of land contracted into the USDA’s conservation reserve program have contracts that will expire this year. Most of these acres are expected to be taken out of the program.
Energy market prices will continue to lead commodity prices going forward. If ethanol blend mandates are increased the price of corn will go up. Biodiesel fuel blend mandates are also expected to increase. Any increase in methyl ester production will support soybean demand. Palm oil production is limited this year. The best substitute for palm oil is soybean oil. Soybean crush has increased and this is expected to continue in 2010.
USDA CCC lending rates are the same as last year or slightly lower. However, private lending sources are becoming much more selective. Lending rates could increase if inflation becomes a problem. Most market traders expect inflation pressure in the future if not in 2010 then later. Inflation will help support commodity prices but hurt the economy.
Soybeans
Soybean market technical charts exhibit overbought conditions. Chinese buying is expected to subside. China is subsidizing the purchase of domestic soybeans by Chinese crushers. China and other soybean importing countries are expected to switch interest to South American soybeans. Brazilian soybean harvest is under way. Brazil is expected to produce a record soybean crop. Private estimates expect an increase of 5 percent total production.
Export inspections the first week of January were 32 million bushels. That number is below market expectations.
Corn
Fundamentally, corn supplies are relatively tight compared to beans, wheat and rice. Corn demand has increased. World economies are growing again. Chicken and egg production has increased in Asia. The jobless economic recovery in the United States has limited increased consumption of meat. The main use for corn remains animal feed. World feed use is increasing more than domestic feed use. Ethanol use is increasing also. Any increase in fuel blends will support higher corn prices.
Traders are expecting an increase of investments in commodities. This is driven by fears of inflation and economic growth worldwide. Fund traders are expected to take more interest in commodity investment across the board. Gold is the fastest growing investment at present. Energy investment growth is also increasing. Agricultural commodity investment is likely to follow. Corn has the most upward potential because supplies are more limited.
Wheat
Wheat is actually cheap compared with soybeans, rice and corn. Fundamentally, world supplies exceed world demand keeping prices down. However, wheat plantings have decreased worldwide. Once the current supplies are used, the upcoming crop will not replace all of it.
United States wheat is higher priced than most other exporting countries’ wheat. U. S. wheat is influenced by dollar values more than other grains. As dollar values rise, wheat exports drop significantly. Conversely if dollar values drop wheat export potential increases. Export inspections were disappointing at only 9 million bushels. Europe and Black Sea wheat are garnering most of the world export business.
Rice
Rice markets have optimistic fundamentals developing. The Philippines are likely to continue importing rice. Even if they buy Asian rice, that reduces total world supply. The Philippines are expected to continue rice imports as the economy grows. Rice production in the Philippines is more likely to decrease than increase.
India has changing crop production patterns. Wheat planting is expected to increase as is cotton production. This action will limit rice acres. India is on track to become a rice importer instead of rice exporter. India is expected to import rice sometime this year. As rice production changes in Asia, Japan may increase rice reserves.
United States government policy changes are likely to allow exports of rice to Cuba in the future. This action will increase demand for long grain rice. The United States has a decided advantage over other export nations on the Cuban market. Cuba is closer to United States rice than any other rice exporting country. Freight to Cuba from the United States will be significantly less than from any nation in Asia.
Cotton
Cotton fundamentals are becoming more bullish with each passing day. Asian economies are growing again. Supplies in storage are decreasing rapidly and world production is anticipated to increase only slightly by 2 million bales.
Cotton acres in the United States are predicted to increase by one million. This would put U.S. cotton acres near 10 million. That is still down 2 million acres compared with 2 years ago. China is also expected to grow another million acres. India is also expected to increase cotton acres.
Total carryover stocks for the United States could be as low as 4.5 million bales. Deliveries last week were bullish at 410,777 bales. Fund traders already hold large buy positions in cotton.
