New-crop U.S. corn slips on expected record acres

Canola contracts on the ICE Futures Canada platform lost some ground during the week ended May 4. The declines posted in the nearby May and July futures were greater than in the November-and-beyond months.

The unwinding of the old-crop/new-crop spreads was a feature during the week, which resulted in the nearby months moving down and the deferred contracts up. A lot of positions had been established in the old-crop months based on supplies becoming extremely tight because of the strong usage pace.

A “toppy” feel to canola on the charts also prompted some liquidation of contracts. Macroeconomic issues also reared their ugly head late in the week, causing speculative accounts to further bail out of positions.

The declines in the deferred months were restricted by growing concern over the moisture that has built up in some parts of the Prairies, particularly southeastern Saskatchewan and southwestern Manitoba.

Precipitation, in some cases six inches or more, has flooded out fields in those areas. The once-early start to seeding in these regions is now out the window and it’s hoped that farmers in the area will actually be able to seed before it’s too late.

Underlying support in the deferred months also came from continued indications of tighter-than-anticipated global supplies of oilseeds, with South American soybean output continuously being reduced.

There was some arbitrary price movement seen in milling wheat, durum and barley contracts on the ICE Futures Canada platform, but very little in the way of actual volume.

CBOT (Chicago Board of Trade) soybean futures were mainly lower, with declines fuelled by favourable weather for the development of the U.S. winter wheat crop and the resulting ability of U.S. farmers to seed more soybeans.

Sentiment that soybean futures were overbought and in need of a further downward correction also weighed on values.

Underlying support in soybeans, however, came from continued Chinese demand and further production reductions in the South American soybean crop estimate.

CBOT corn futures were down on the week with new-crop contracts experiencing the larger of the declines. Most of that selling was linked to the favourable weather for planting and for the development of those crops.

The record-large area that will be seeded to corn in the U.S. also remained an undermining price influence.

Losses in corn, particularly old-crop months, was tempered by continued sales of U.S. corn to China and the tightening supply situation.

Wheat futures at the Chicago, Kansas City and Minneapolis exchanges were lower on the week. The quick seeding pace of the U.S. spring wheat crop, combined with favourable weather for the development of the U.S. winter wheat crop, sparked the downward price slide. Crop tours in the U.S. Winter Wheat Belt have also found yields will be much better than first anticipated, which in turn added to the bearish price atmosphere. Global supplies of wheat also remain more than adequate to cover any demand jump, which served to add to the price weakness.

Record corn acres

Corn will be the dominant force in the U.S. this year, especially with production expected to hit new highs, assuming the weather co-operates.

There is no hiding the fact that U.S. farmers intend to seed the largest corn crop since the 1930s, with the U.S. Department of Agriculture pegging plantings in the 95.9-million-acre region.

The biggest difference in the record acres from the 1930s is that yields have improved greatly over this time period. Trendline yields for corn in the U.S. are now at the 164-bushel-per-acre level, compared to only about 25 bu./ac. back then.

With the record acres and improved yield prospects, there are already ideas that U.S. corn output will top the 13.1 billion bushels grown in 2007-08. Some private forecasters were anticipating that U.S. corn production could actually top 15 billion bushels.

The expectations of production coming in that large have already caused new-crop bids to trade at a significant discount to old-crop values, and the anticipation is that the discount will only continue to increase.

Granted, China appears to be in need of more corn, especially with its hog herd expanding and its feed output limited, which should help to offset some of the large production total. Chinese demand for U.S. corn in 2012-13 was seen climbing to six million tonnes from the four million in 2011-12, based on calculation from the International Grains Council.

U.S. corn supplies have also been extensively used in the U.S. livestock sector, but with old-crop supplies tight and the cost of this feed so high, alternatives have been found, including cheaper feed wheat.

The ethanol demand for corn was also seen declining, given that U.S. government support programs have fallen to the wayside. However, there are still hopes that with the larger U.S. corn crop, the abundant supply base will cause a shift back to corn, which in turn will give values a chance to move off the bottom they appear destined to test.

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