Monday, June 27, 2011

Opening Comments 6-27-11

Grain Markets are called mixed to weaker this a.m. behind a weaker overnight session with mixed outside markets.

In the overnight session CBOT Wheat was off 8-11 cents, KC wheat was off 11-12 cents, MPLS wheat was down 7-9 cents, Beans where off a nickel, and corn was off 5-6 cents.  At 9:00 equities are slightly firmer with the DOW up 50 points, the US Dollar is softer with the Sept down 285 at 75.925, European wheat is off about 2.5%, and crude oil is down about 80 cents at 90.40 a barrel.

There was an announcement of a private sale of corn this a.m. for 230k tones; perhaps this adds more China buying talk to our corn market.  China did buy some beans this a.m. purchasing 132k tones of old crop beans.  The USDA also announce private export sales of 100k of HRW to Iraq; the destination of the sale was previously marked as unknown.

The little bit of business around along with outsides bouncing and the very oversold conditions could give us a chance to bounce a little bit off of our overnight session. 

In case anyone missed it our markets have been a little volatile over the past few weeks; that stemmed from tight fundamentals on the last USDA report which pushed us to new highs followed by massive selling pressure which seemed to be due in part to the weak outside markets but also the fact that we just had too many too bullish. 

Going forward weather (and what it does for yield) along with money flow (which should be influenced from the outside markets) should give us our market direction.  If we end up seeing yields much below trend line we likely have to curve demand or we go much higher; while if we see yields and supply bigger then expected there is tremendous downside risk.

Right now to me it feels like we have set the stages for this week’s crop report with updated stocks and acres to define how we go for the next couple of months.  There is risk out there that we see the USDA throw up bigger then expected stock’s numbers which in turn gives us more starting supply for next year.  If that happens along with more acres then what the trade is expecting we have a chance to turn our fundamental situation in terms of carryout to something that is tight to comfortable in a hurry.

One thing that is friendly and has been friendly for some time is the firming basis numbers seen; by both corn and winter wheat.  Both show good solid demand behind these grains and that indicates that we should see the futures markets follow.  As example how strong should we view the corn market when we compare to 2008.  If we look at the basis now versus the basis back then we see that we have a basis firming or been firming for several months despite the high prices.  That in it self says that plenty are nervous that there might not be corn out there when they need it.

As for marketing keep in mind that even though our prices have broke hard recently we are still well above a year ago levels; corn is still about double what it was a year ago.  KC Wheat is about 3.00 a bushel higher then it was in June of 2010.  If one remembers the mindset of the market place and the ideas of where price direction was headed a year ago it was very bearish and now looking back we see that it was simply too bearish; too many where thinking prices had to keep getting softer.  Our risk now is that we are seeing the opposite happen; maybe the free fall started a couple of weeks ago?  Meaning we had nearly a year long bull market.  Maybe it simply turns out to be a correction.   Bottom line is with the risk we have out there along with the possible upside potential the only smart thing to really do is practice good solid risk management in your marketing plan.  If you don’t have much sold; don’t be afraid to make some sales here and there so you are spreading out your risk and doing so at still profitable levels.

Please give us a call if there is anything we can do for you.

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