Optimism prevails with some commodity analysts

LOUISVILLE, Ky. — The grain market pens should be full of bears, yet it appears a few bulls are also hiding in the corners.

Darin Newsom of DTN/Progressive Farmer told the National Farm Machinery Show in Louisville that despite nearly every fundamental reason for the grains and oilseeds markets to be bearish, they actually aren’t.

He feels the markets might have posted their near-term lows.

“Corn supplies are at record level. Soybeans too … and wheat,” he said.

“China is not buying the way they were. Everything tells us the markets should be (going lower). But there are clear indications that isn’t the case.”

The analyst pointed to spreads between futures months as well as nearer term basis levels, which he said should be much worse than they are, considering the pressure they are under from large inventories.

He said grain merchandisers will soon be buying cash corn, which is one reason why the market is higher than it might otherwise be.

Another factor is the continuing rise in domestic demand for corn, which could rapidly eat up the significant spread between supply and demand.

Futures prices for 2015 new crop fail to show any interest in speculating on another huge corn crop or a shortfall of current production expectations.

Many reports indicate that American producers this spring are expected to seed more soybeans so that the area is almost equal to corn. Corn typically leads by a significant amount.

However, Newsom isn’t buying it.

He believes growers will keep most of their rotations in place rather than turn to soybeans for that crop’s lower input costs. He said the corn market has reached it lowest ebb in a 2012 to October 2014 downward trend and will now move higher until 2017.

He expects corn to rally to US$4.40 a bushel until early May and for new crop prices to be $4.30 to $4.50.

He said soybeans are also more bullish than most believe they should be.

“I think demand out there is stronger than people think.”

Newsom said he hopes the November $9.27 1/2 price set last September was the low and that cash prices will remain in the $9 to $10 area.

“Wheat should be really bearish, but it isn’t,” he said.

Fundamentally, ending stocks are expected to rise this year, a bearish signal, but technically the Chicago wheat market is inverted with March futures trading at a premium to May. That usually occurs only when it is bullish.

As well, the U.S. basis on wheat re-mains strong. Sideways moves for new crop soft red winter wheat on the Chicago market also points to an uncertainty about future supply.

Weather is the wild card that seems to be working in wheat’s favour, said DTN/Progressive Farmer agricultural meteorologist Bryce Anderson.

Recent temperatures of 20 to 28 C in the southern wheat growing areas of the U.S. are suspected to have brought some of that crop out of dormancy, and cold weather is now returning. This could damage the crop’s prospects for yield later on in the year by reducing plant populations.

Newsom said old crop wheat will likely settle into the $5.15 to $5.45 range. His forecast for the new crop July contract is $6.30.

“Somebody wants this wheat. We don’t know who yet, but somebody is out there.”

Anderson said it should be a good growing year for North American producers, outside of the U.S. southwest. He said a small El Nino is in play, which will help secure a drier trend at seeding and an earlier start to the growing year.

Newsom feels that ideas about the potential for more record crops would have been priced into the new crop by now if the market was truly bearish.

“But if you’re looking to move some old crop, look for opportunities in April and May, and if there are any weather scares, it might be time (to price some new crop),” he said.

Contact michael.raine@producer.com

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