Market Perspectives January 24, 2014

Chicago Board of Trade Market News

Outlook: The March corn contract spent the week in a narrow trading range while soybeans sold off. This price activity was related in large part to speculators exiting their long soybean and short corn spreads. As well, present market conditions are not overly bearish for corn because winter is normally a period of strong domestic feed demand and the recent cold weather in the United States is further increasing feed rations. Higher cattle prices are incentive for feedlots to maximize weight gain and for pork and poultry producers to increase production. This afternoon, USDA will publish the Cattle on Feed report which will influence whether cattle prices continue to escalate upward or not. Strong winter feed usage may be evident when USDA publishes the March stocks report on March 28.

In the near-term, feed grain market participants will continue to watch the export demand for corn and the rate of domestic ethanol production. South American weather will also be crucial for the next few weeks as Argentine corn pollinates. There has been some improvement in soil moisture conditions in Argentina. However, that improved production prospect may be offset by declining economic conditions, which is making Argentine farmers more hesitant to market their developing crops. The result is that U.S. corn is now competitively priced against Ukrainian corn and the impending harvest in South America.

Stable basis in the export markets, logistical contraints due to winter weather (as well as strong feed demand), and reluctance by U.S. farmers to sell on price declines should maintain and/or strengthen interior basis levels while corn futures contracts remain in a vertical trading range. The feed grain basis is likely to remain firm going into March, when there is expected to be some increased farmer selling for tax reasons and to settle lease agreeements. By that point, futures may make up for weakness in the basis.