Tuesday, January 18, 2011

Grain Market Comments 1-18-11

Markets are called firmer this a.m. a firmer overnight session, support outside markets, and quiet a bit of wheat tenders out there.

In the overnight session corn was 6 better, beans where up 2 on new crop, old crop beans where down 3-4 cents, KC wheat was 13 better, MPLS wheat was 15-17 better, and CBOT wheat was up about 15.  As of 9:10 outside markets have the US dollar weaker with the March down 585 at 78.925, equity markets have bounced back positive with the DOW up 40 points, and crude is off about 30 cents a barrel.

It looks today like the grain market bull continues to be alive and well; experiencing only some natural and needed set backs along the way. 

Market did open up and it is now about 11:15; we have had a rather choppy volatile day so far.  The grains traded softer then where the overnight session left off at shortly after the open; but then about 10:30 or so we did see even more strength for the grains as we saw corn up about 13 at one time.  Right now corn is up about 8, beans are down 5, KC wheat is up about 13, MPLS up 13, and CBOT up 16.  Beans are 14 or so off their highs, wheat is 5-7 cents off of it’s highs, and corn is 5-6 off of it’s highs.  The dollar has bounced off of it’s lows with the March at 79.245.

As mentioned above wheat’s strength seems to be from some demand; (which is good to see) as Algeria bought 600k tons over the weekend.  Libya also bought wheat, while talk of Japan, Iraq, Saudi Arabia, and parts of S Europe either buying, tendering, or having interest in purchasing is out there.

Also out there today is the talk that China is wanting to buy corn to build up reserves.

It is now about 1:30; the grains have stopped traded; but we don’t have the close yet; it looks like it should have corn up around 11 or so, beans down 9 on old crop, new crop up 3, KC wheat 15-17 better, MPLS 15-16 better, and CBOT wheat was up 15-20.  Equities are still firm with the DOW up over 60, crude is still off about 35 cents, and the dollar is still around 72.265.

Overall a great day for the grains; a little disappointing on the beans; but with rain hitting parts of SA it shouldn’t be too surprising as that market has had a great rally since the USDA report and bull markets really need to have corrections as straight up markets with no corrections tend to go straight down at some point.

Wheat basis felt a little firmer today for winter wheat; I had a spot train out there that traded back towards the levels being bid a couple weeks ago and that was about a 10-15 cent improvement versus the to arrive bids we had last week.   We also had another good sign of demand happen today for wheat; as we where applying a winter wheat train on contract to CHS; who was then trying to apply to a mill.  The mill wouldn’t take it without a dime discount because it had a little WOCL; but we ended up getting it applied as CHS took the train to the export market.  Anytime we start seeing a product go to a place where it typically shouldn’t go usually the normal buyer ends up paying more later; in today’s action it reminded me a bit of 2007-2008 when we see a lot of wheat go the export market.  When the domestic market woke up; there wasn’t much wheat left and it lead to some panic and the biggest basis swing I have ever seen in a crop year.

We did have export shipments out this a.m. and once again corn lagged coming in about ½ of what is needed on a per week basis as they where pegged at 20.5 million bushels.  Wheat was also shy; but still good at 21.6 million bushels, and beans came in at 43.2 million bushels which is about 2 times what is needed on a per week basis.

Some of the pressure on the beans came from good moisture hit parts of the driest area’s in South America and there is more in the forecast. 

As for where our markets go from here in the big picture or price forecast for July or Dec 2011 it really remains up in the air.  Fundamentally our balance sheets are much more bullish then they have been the past couple years and if we don’t curve demand or add a tremendous amount of supply we really have a lot of upside potential.  But if we do curve demand and then say add more supply there is the real possibility that we see something closer to loan prices or ldp’s come next fall harvest.  (I should restate on the balance sheet/fundamental statement; US corn is as good as it has been in a long time, while the wheat numbers are much tighter then they where a year ago, and the bean numbers are much better then they where forecasted just 3-4 months ago.)

What are some of the factors that could give us $8 corn or maybe only $3.00 corn; the two big ones are demand and supply.   Could we see the acres planted this year jump back towards the planted acre levels a couple years ago?  What about CRP acres; do more of them go back into production; in economics if prices are profitable we should and could look to add some acres back.  What about the yield; is there the potential to see corn yield next year go 10-15% above trend line yields?

On the demand side can things stay this strong?  I.E. can our world economic situation support these levels?  What about the ethanol industry and livestock industry; as many go broke this time around from $6.00 corn as they did last time?

What about money flow and the other impacts that the overall economic situation throws our way?

My opinion is that sometime in the next two years; we will see corn lower then it was back this last June; yet make new all time highs.  I just think that the volatility we have seen will spill over to even more volatility.

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