Tuesday, May 22, 2012

Grain Market Comments 5-22-2012 corn gets hit hard

The grain markets took a step back today behind some rumors that China was cancelling some old crop purchases of corn and soybeans.  Nothing really confirmed but plenty of China rumors.  Perhaps just another trick to buy at cheaper prices or maybe this is for real.  Some of the rumors where that they cancelled, others that they replaced with South American business, and others that they rolled into new crop.

The wheat market was the only market that held in there and only via closing above yesterday’s lows; wheat was still like the other grain markets priced lower and rather sharply lower.

Not sure if it is fear time; but we need to realize that there is plenty of downside risk to the grain prices.  So practice good risk management and have a solid grain marketing plan in place for you and your operation.

At the end of the day old crop corn lead the pressure down with the July off 32 cents, Sept was 20 lower, and the Dec corn contract was off 16 cents.  These are the last trades; not the settlements as corn’s last trades where a couple cents better then the settlement or actual close, beans a penny weaker, and wheat’s last trade price was very close to its settlement or closing price.

Beans were off 32 cents on old crop, new crop beans were down 25 cents, KC wheat was off by about 14 cents, MPLS off by about 15 cents, and CBOT wheat was off 18 cents.  Outside markets had a very strong US dollar which didn’t help our markets out at all, crude down over a dollar a barrel, and equities ended the day about unchanged.

The latest weather updates appear to have a little relief in some areas and most felt this added to the pressure; but really it seemed to be the corn market leading us down and we have seen basis feel a little weaker in some spots for corn.  I actually thought wheat held in there and consolidated like it is suppose to do following a nice run up; no red flags technically to me that it is over.  While I seen an article on beans today that had the headlines of Sayonara Soybeans!  The label of the technical article itself is rather scary; bottom line is beans have done plenty of technical damage to the charts. 

Basis for wheat is a little weaker on the run up but not really considering the huge rally the board did have.  I remember the 2010 rally and it seemed like basis was weaker penny for penny on what the board did; the recent rally has helped producers catch up on sales without damaging basis much.  Anytime basis holds in there when the board rallies it is a good sign.

The birdseed market is a little defensive on sunflowers but the millet market is now on fire. 

We recently sold a big chunk of Milo the ethanol market as well; so that commodity feels a little better or at least it’s supply and demand dynamics has changed.   

I think the wheat price action the next couple of days will be very important as well the weather and what it helps the charts do or not do.  If wheat can hold these levels with maybe some digestion on the charts or consolidating it should give us a chance to have another leg up.  The funds still remain short and if our crops have got smaller in the US and the World since the last Supply and Demand report that should only help out our prices.  Keep in mind that even though it seems like we have plenty of wheat our US and World carryout numbers are down to the lowest level since 2008.  That to me is friendly and the funds love weather stories so if we don’t get the moisture that is being called for in Russia and it remains dry down south I think wheat has the potential for a nice little bounce. 

From a pure risk management perspective keep in mind that every time wheat has bounced in the last year or so it has failed and ended up lower then where it started it’s rally at; so there is nothing wrong with pricing some grain on this rally because that is still a possible outcome and if you look at the US dollar chart you would be very nervous owning the grains right now as it’s chart looks rather friendly.

We have talked about wheat being too cheap versus other commodities for a long time now and that is another possibility that the market could do; get spreads back in line. 

As for corn outlook new crop really comes down to weather as I can paint pictures or possible price outcomes where on good yields along with poor outside markets that corn gets really cheap perhaps starting with a 3 and on the other hand bad weather or say 1988 type weather could propel corn to new all time highs.  Bottom line is that our markets have more risk and volatility then ever so the only logical thing to do is risk diversify and make sales that make sense when given the opportunity.  Today we still have the chance to make sales or get protection on to lock in profitable levels.  No guarantee that will be the same a few days from now more less a few months from now.  If you need help with your marketing or want to put in some open orders/offers please give us a call.

One thing I didn’t like today was the fact that I haven’t heard or seen one comment for corn that basis is better with the softer board.  The board going down and basis weaker isn’t a great thing to see.  Technically corn to me appears to be in a sideways market. 

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


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