Blogging by the Bushel
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Commodities were range bound in April as the markets digested the implications of last month’s planting report. Soybeans have continued their rally and now stand at a three-year high after the USDA announced that U.S. farmers will plant the largest corn crop since World War II at the expense of soybean acreage. China shocked the market at the end of the month by buying 1.5 million tons of U.S. corn, the largest one-day sale since 1991. Optimal weather has farmers planting at a record pace across the Corn Belt as 53% of the entire corn crop has already been planted compared to the five-year historical average of only 27% by the end of April. So what does all this mean? Watch out for the markets wild cards!

Call them black swans, outliers or wild cards, they give the market fits. We may see a few this year, because farmers are at the center of some historical production swings. While grain trading is determined within a large supply-and-demand market, it’s the wild cards thrown into current tight supplies this year that will add volatility and possibly change on-farm production dynamics as we know them.

Thanks to a bullish environment and agree-able spring weather, USDA is expecting more corn acres. Overall supply is an important marketing factor, but demand from China and other overseas markets has an even greater impact, says Farm Journal economist Bob Utterback. “We are in a time period when the supply and fundamentals for corn and soybeans are still important but will indicate only about 40% of the price direction,” he says.

The Chinese wild card could be played. The U.S. Grains Council reports: “USDA has confirmed more than 3.9 million metric tons (MMT) of U.S. corn has been sold to China during the 2011/12 season. As I mentioned above just yesterday they bought their largest one day sale since 1991. With this sale it is possible that the current season could surpass the 1994/95 record of 4.287 MMT of U.S. corn sold to China.” That makes for a shaky corn market.

Another wild card is the Environmental Protection Agency’s recent approval of applications for registering ethanol in 15% gasoline blends. This is a significant step forward for E15 fuel—will more U.S. corn go to ethanol production this year? The record sale of U.S. corn at the end of April will set the bullish tone for grain prices throughout the summer and into the new crop marketing year. In addition there is no doubt that we will encounter many more bumps in road before fall harvest so keep your eyes and ears open.

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