Weak exports weighing on grain markets

(WJBC) – South American weather is making an impact on grain markets this week, as the planting season is almost over in that region, according to Brian Basting, commodity research analyst with Advance Trading.

Outside markets continue to have secondary influence, as well as export trends, which have been quite weak over the past few weeks. Corn exports are weaker than usual for this time of year, probably because of the high prices this summer. Feeders overseas have substituted cheaper feed wheat in place of corn and there is plenty of that product available. There is also more competition from corn in places like Ukraine.

Soybeans are in a very weak pattern relative to last year. There is more competition from South American and weak demand from most places, with the exception of China.

The bright spot comes in corn where a record amount of corn is being produced for ethanol. The margins for ethanol plants have been quite strong for a while.

Now the market is waiting to see what the USDA has to say in its January report about feed usage this fall.

“Until then, I think we’ve got a negative export picture but we do have a positive demand picture for ethanol on corn,” said Basting.  “For soybeans, it’s more of a struggle to find a lot of good news right now.”

In the absence of fundamental news, markets continue to be swayed by outside markets and the strength of the dollar.  However, this is more of a day to day influence, and Basting believes the fundamentals are driving the bigger picture long term with South American weather and demand news.

On the livestock side, the projected returns for the hog market for 2012 are attractive right now.

“That’s good news.  It’s been a bumpy road for those folks for the last few years, and certainly welcome from a livestock standpoint that continued profitability there, and it helps to consume the corn, obviously, so it’s a supportive factor for both sectors,” said Basting.

The cattle market continues to experience negative returns, and the poultry is mixed as egg producers are projected to make some money looking forward.  On the other hand, the broiler sector has been hit with high input costs and may see some contraction.

The situation with MF Global also continues to linger. Basting said those affected are learning how to make claims for the funds that are unaccounted for, but that’s a process that will take time.

“Perhaps it has shaken the confidence of the market a little bit in terms of what occurred but hopefully it’s an isolated incident and we’ll move forward from here with some tighter oversight of that issue to make sure that we don’t have to go through this again as an industry,” Basting said.

Basting reminds producers to be looking ahead to their 2012 crop decisions, as the markets sometimes don’t wait for the holidays to move.

“If you’re making a commitment to plant a crop for 2012, whether it be an input purchase or a seed purchase, it’s important to recognize that you ought to be looking at locking down the price or some kind of price protection for 2012,” said Basting.

Lock in a floor but leave the upside open – good prices still – want to be able to participate if the market moves higher, but want to have a backstop if things move lower.

Carrie Muehling can be reached at carrie@wjbc.com.