Corn has received most of the love from analysts and news organizations over the course of 2011, and for good reason. Production will fall well short of what was needed to rebuild stocks to a comfortable level. This sets up a 2012 growing season fraught with the same questions that faced the market earlier this year. Where will all the acres come from? Will planting be delayed? Will hot nighttime temperatures stay away during the critical pollination period? Will the drought ever end in the Southern Plains?

As I've mentioned in previous columns -- "Hello, My Name is Bean" and "Will Beans Follow in Corn's Footsteps?" -- the bean market is long overdue for some attention itself. This past Friday was a key turning point that has made traders stand up and pay attention. The November contract finally broke out of its sideways trend that was in place since mid-March and closed at a new contract high, followed by another three new highs through Wednesday. This means the short-term uptrend is strengthening, and there's little reason to believe that won't continue in the weeks ahead.

Market volatility remains low at near 20% in beans as compared to about 38% in corn and almost 50% in Chicago wheat. This should mean the noncommercial side will be hesitant to sell and quick to buy back in on breaks. A small glimpse of this has been witnessed so far this week. Each overnight session closed lower only to see the market fight back and finish higher by the close through Wednesday.

More important than either of the above-mentioned items is the action by futures spreads. All the way out to March 2013, spreads either hold a weak carry or inverse. What does this mean? For those of you familiar with this column, you know it means commercial traders are growing more bullish toward the supply-and-demand outlook longer term.

The interesting part about reading spreads for a living is one has to make assumptions as to why this is, instead of knowing all the details of the story before it unfolds. My educated guess is end users believe domestic yield and harvested acreage numbers are smaller than USDA's current 41.4 bushels per acre and 74.25 million acres. If realized, total production would also come in below August's 3.056 billion bushel estimate, thereby tightening up the domestic stocks-to-use ratio to below the current 4.9%.

Could it be that commercial traders are a bit concerned over the possibility of La Nina re-forming in the Pacific and negatively affecting production in 2012, not just in South America but in the U.S. as well? How about the dry conditions in the central Midwest and Delta with Mother Nature offering little hope for relief in the next 7 to 10 days? Maybe they feel China will start to rebuild reserves as was reported earlier this week. Or the fact acres will be limited in favor of corn in South America. All of these are possibilities.

Regardless of what the final details are, the bottom line is the market structure is growing more bullish, led by increasing concern from the commercial side. As long as spreads remain on their current path, beans should prove to be a hard market to keep down. Ultimately, the proof will be in future USDA reports that should show a tightening balance sheet well into the 2011-2012 marketing year.

Until then, I expect both noncommercial and commercial traders to remain interested in owning more bean contracts, possibly redistributing some of their money away from King Corn.

John Sanow can be reached at john.sanow@telventdtn.com

(AG)

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