Wednesday, June 6, 2012

Market Comments 6-6-12 Markets stronger

The grain markets showed a nice bounce today behind very firm outside markets.

At about 1:20 markets have old crop corn up about 16 cents, new crop is up a dime, old crop beans are up 36 cents, new crop beans are up 20 cents, KC wheat is up 11, MPLS is up 11-16 cents, CBOT is firmer by about 9 cents, equities are strong with the DOW up 200 points, crude up about 60 cents a barrel,  gold up 3-4 dollars an ounce, and the US dollar is sharply weaker with the cash index down to 82.326.

Overall a nice little bounce for the grain markets, but to me I thought the price action for new crop corn and wheat was on the disappointing side considering the outside markets.  I am not sure exactly how they will close the markets based on the 1:15 settlement because we did have some wild swings in the last couple of minutes; but when you see the dollar down nearly 500 points and the DOW up 200 plus points for wheat and new crop corn not to even get back to Monday’s levels is disappointing to me.  It appears that we had plenty of willing sellers on the little bounce and I did notice a little increase in producer selling also on the small bounce.

The fact that we the outside markets stabilizing is good and longer term if they can continue to stay firm it gives our grains a chance to trade the fundamentals of supply and demand a little bit more and just based on the fact that we live in a growing world I think we have some upside potential.  When we look closer to the near term fundamentals we see that we have some bullish potential behind weather that has many thinking our yields are not close to what the USDA has them pegged at for nearly all of the crops with new crop corn being at the top of the list.  Add to that the tight old crop corn situation behind solid ethanol demand and the overall tight soybean situation you have a market to me that could get bullish in a hurry if weather gets hot and dry if money flow decides not to leave. 

One should note that there are a lot of “if’s” in the above bullish statement.  On any day hundreds can list you hundreds of bullish or bearish outlooks; so keep practicing good solid risk management in our market; as we live in a world where the “if’s” don’t always happen like we would like them to.  Everything is not ideal all the time; so adjustments are always needed.  But for today the market wanted to focus on the potentially positive outcomes.

Basis is still firm across the board; but we have started to notice a little increased producer involvement and selling.  Basis firmness is more due to a lack of willing sellers then anything; many ethanol plants are still struggling.  I asked one of the plants I do a lot of business with yesterday if he was interested in buying some corn for August or September and his comment was he had no reason to go out and buy product at levels that lock in a huge loss.  The fact that they are hand to mouth; is both a good sign and a bad sign.  It means they potentially need lots of coverage and have plenty of buying to do; but it also means they can slow production or maybe shut down if need be.  High prices cure high prices as do low prices cure low prices; which is one of the reasons I think guys might want to be proactive on old crop corn basis.  You don’t want to lose that dollar inverse that is out there; the last guy that has old crop corn could get paid very well; but the guy after that could take a bath as when buyers decide they don’t need anything until new crop and they are covered there bids will fall faster then one can dream.

Along these same lines it feels like we could see a lot of product trying to move before wheat harvest.  Don’t wait until the last minute as logistics will cause basis to get real weak in a hurry. 

Don’t forget that we have our weekly MWC Marketing Hour Round Table this afternoon at 3:00

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

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