Tuesday, June 5, 2012

Grain Market Comments June 5th - Old Crop New Crop Corn Spreads wild; have you locked in basis?

The grain markets closed mixed to weaker today.

Old crop corn was about unchanged, but new crop corn was off 16 cents behind some moisture in some of the recent forecasts, soybeans where up 8-10 cents, KC wheat was off 17-20 cents, MPLS wheat was 12-14 cents lower, CBOT wheat was off 14-16 cents, equities where mixed to slightly firmer with the DOW up 26 points, crude was near unchanged, and the dollar was firmer with the cash index at 82.77.

Some better yield reports in KS for wheat harvest and better moisture forecasts helped the grains come under some pressure. 

Technically the Dec corn had a rather bad session; putting in an outside bearish day this helped pressure the July corn to close near unchanged after being stronger for much of the session.  Yesterday’s crop conditions that came in unchanged for corn didn’t help either as the market was expecting a decrease in conditions behind the weather we have had lately.

Helping keep the July contract firm is basis; which is very strong for old crop corn.  Buyers lack summer coverage still and the weakness in the board the past couple of weeks has slowed producer selling to about zero.  I would note that the spreads widening is a good sign of up front demand out pacing the up front supply but it is also a great risk that many have.  Sitting on product threw an inverse is more then costly.  Cash bids have around a dollar spread between old crop and new crop corn price; so if nothing else don’t forget to look at locking in the basis on the old crop corn at some point in the near future.  We do allow you to lock in the basis versus September or December contract also.  One other possibility is a min price contract.  Bottom line is that with old crop corn so tight; there is great potential; but with that great potential you have just huge risk.  If you need help managing it please give us a call; you don’t want to give up that big inverse.

Wheat basis remains steady and actually feels a little firmer as selling isn’t happening off the combine down south.  I wouldn’t say demand is robust by any means.  The fact that basis is holding in there despite it being gut slot harvest is a good sign; but not a great enough sign to get too bullish wheat.  Weather in Russia and the conditions across the world leave me slightly friendly the wheat market.

The outside markets have been on the stable side the past couple of days; yet our grains really haven’t done anything.  We blamed the outside markets for the fall apart the past couple of weeks as funds have been aggressive sellers; but despite the fact that the equities and US dollar really haven’t done anything the grains still struggled the past couple of days.  That in itself is not good and the fact that the corn crop conditions didn’t show a decline really caught people off guard today and unchanged crop conditions when rated very high isn’t what you would expect with all the dry and hot weather talk.

Watch for weather and the funds to continue to dictate price direction as we move forward.  With wheat harvest very near look for some local basis pressure as producers look to move product to empty bins.  This probably makes basis rallies hard to happen until we get threw wheat harvest.  This probably effects all of the grains as there just doesn’t seem to be enough demand to offset the supply that wants to move before wheat harvest.  Sunflowers are a great example; every day I get a couple producers calling to move product just to help get bins empty short term.

Depending on how much grain gets moved here in the short term things could be much different when producers get out of the have to move or have to sell mode.   But the fact that short term we are likely to struggle and the fact that outside markets are (should) be reminding us of 2008 price collapse tells me that proper risk management is still needed as we are still at rather profitable levels; so don’t get yourself in a have to sell situation.

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


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