Information about grain markets and info to help producers to market crops. See how various grain marketing strategies can effect ones average price. We will be posting various potential trade and option strategies along with marketing decisions made on our mock farms.
Wednesday, May 9, 2012
Opening Comments - Morning Comments - Day ahead of USDA report
Below is a forward from our main Country
Hedging contract. It has some of his thoughts
on the crop report that will be out in the a.m.
As for markets today we should see some
consolidation ahead of the report in the a.m. perhaps a little position
squaring. However we do have weak
outside markets and overnight markets that where weaker.
In the overnight session beans lead the way
down off about 15 cents on the old crop, KC wheat was down 4, MPLS 2-3, CBOT
wheat down 4, and corn was off 3-4 cents.
At 9:00 outside markets are weak; but slightly off of their lows;
presently gold is off a little over 21 an ounce, the equities are weaker with the
DOW off about 100 points, crude down about 1.20 a barrel, and the US dollar
stronger up nearly 400 at 80.134.
With the risk off type of environment you
see beans leading the way probably because of the huge fund length and the fact
that now the charts look like a top is in; which happens a lot after the fact
in our business. Keep in mind that
longer term if you look at some of the projections below new crop beans
probably have some potential.
I think that the numbers below show some
huge possible risk; hopefully it isn’t realized; but the risk has to be
considered huge if we look at corn carryout projections for next year. The average estimate is for 2012/13 to double
this year’s carryout and when I went back and looked at the last time we had a
2 billion bushel carryout or so we had prices get under 2.00 on the
futures. Obvisouly a lot has changed
since then; but that is simple scary.
Now my personal opinion is that we a long
way to go before we have a crop made; plus the USDA has a tendency to adjust
demand with supply and vice versa and the fact that they already have said some
of this coming years crop will be used to help off set the tight old crop
Basis for corn has been hot; but feels very
top heavy. I have seen 3 local ethanol
plants start to inquire about replacements to corn; such as milo and
wheat. Keep in mind the old saying that
high prices cure high prices; just as low prices cure low prices.
For wheat the above sentence is really
about the only good thing we seem to have going; and uncertainy to our spring
wheat crop. Demand seems to have picked
up a little bit with the lower prices and the outlook for acres in the coming
year is rather poor. There is a little
talk of some dry weather in parts of Europe and Russia area; but nothing super
With the report out in the morning don’t be
afraid to get some sort of protection or comfort level incase we see the train
wreck that seems to be possible for new crop corn.
Please give us a call if there is anything
we can do for you.
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From: Fitch, Joseph Sent: Wednesday, May 09, 2012 8:31 AM Subject: Morning Note
Overnights are showing continuing uncertainty because of
Europe and the liquidation of the fund long in soybeans and meal. Germany
is talking about a graceful exit for Greece from the Euro and Spanish yields on
debt are making new highs above 6% interest.
Rumored corn deliveries didn’t happen. South American
bean and meal basis was said to be up strongly on yesterday’s futures
decline. Brazil is thought to have connected on two June/July cargoes,
which reinforces the idea that Brazil is taking advantage of the inverse now –
leaving more room for the US to fill late summer bean exports and meal
exports. New crop is still all about US beans, with no export
Tomorrow morning we will see the May S&D from the
USDA. Below I’ve included my thoughts about the report.
Here are the full rundown of estimates according to Reuters.
a.Exports have picked up, but shipments are still
behind the pace needed to get to the USDA’s numbers. It seems likely that
the USDA will leave any changes to exports until later S&Ds. One
issue to consider is the unshipped bushels to China. For now we can
assume that these bushels will get shipped, but every week where there aren’t
shipments is a little bit more unnerving.
b.Ethanol is could be raised slightly if at
all. Current USDA estimates are for 5000 mb. Although the pace has
slowed it hasn’t slowed enough to get to 5000. We will need to see more
signs of downtime and slower production, otherwise the market’s guess of 5025
and 5050 is more accurate.
c.Feed is expected to be steady on this
report. Waiting for new stocks data, I’d assume. There is still a
lot of wheat feeding that is going on.
d.Ending stocks steady to down 25 mb.
Although that sure doesn’t feel like it is small enough with the basis levels.
a.Yield estimates will likely increase from the
USDA’s outlook of 164 to something like 165-167 based upon the quick planting
progress, although we are a long way from guaranteeing trend or greater
yields. This hasn’t worked in the last number of years so maybe they
shouldn’t raise the yield early for once.
b.Acreage historically doesn’t change for now.
c.Feed/residual should bounce higher on a bigger
corn crop, but estimates of winter wheat production could limit any major
increase. I see guesses of 5.2 bb and smaller. Current year is 4.6
bb. This one has a lot of factors, but guess 5.0 bb.
d.Exports should rebound on cheaper prices and the
expectation of expanding Chinese demand so 1.9 bb. This number could jump
over time if the Black Sea wheat production declines come to fruition.
e.Ethanol will likely be raised because of cheaper
corn prices and everything, but I think that we might only be taking a smallish
jump in usage given the heavy stocks situation and my guess that US gasoline
consumption isn’t going to ramp up. So guess 5.1 bb.
f.Ending stocks should be around 1.8 billion.
a. Exports should be revised higher by 25-50
mb. due to South America and Chinese demand recently.
b.Crush should be steady.
c.So ending stocks should 200-225. So right
in line with the market guess. There are some reputable guesses that are
closer to 150 mb by the end of the year.
2.New Crop – one word of caution here: the USDA is
going to have to show some pretty small usage numbers to start with because of
the acreage being unable to change on this report. They usually don’t
want to go below 4.5% stocks/use. So maybe these demand guesses are too
early for the USDA to really show.
a.Exports are all guesses on what happens in
China. Thoughts range between 58-62 mmt. I am naturally suspicious
and I think that the global economy plus rationing type prices puts us in the
lower half of expectations. US exports are going to be good because of
the lack of competition and should jump to 1.5 bb or so.
b.Crush might have some upside next year because
of the smaller South American crops and the spat between Argentina and
Spain. My guess 1.75 bb.
c.Ending stocks without any increase in acres
(like you see on the May report) is going to show somewhat tight at 160-170mb.
Changes in the wheat balance sheet are likely to be an expansion in export
estimates for SRW, HRS, and for White wheat. Ending stocks should be down
25 mb or so.
New crop wheat is going to see a above average yield and some bump in domestic
usage as feeding should be incorporated. This is unlikely to be a major
wheat report. As you notice above the average carryout estimate for 12/13
is almost exactly the same as the guess for 11/12. So the additional
production from the larger HRW crop is thought to be absorbed. World
wheat is likely to be tighter than it has been recently with production
declines thought likely in EU, Russia, Ukraine, Kazakhstan, and
Australia. India had a better crop and could be upgraded.
I still think that spring wheat acreage is tight a little
tight here and in Canada given a lower protein character to HRW. SRW
acreage could be smaller as acreage is said to have been plowed up.