Friday, June 8, 2012

Morning Note from Country Hedging's Joel Fitch

Below is morning note from Country Hedging's Joel Fitch

Good morning,

I’m going to be out of the office starting about noon today and will return on Wednesday morning.  I will have Ami or Chris send you comments on Monday and Tuesday next week. 

USDA reports 60 tmt of 11/12 soybeans sold to China.
USDA reports 350 tmt of 12/13 soybeans sold to China.
USDA reports 120 tmt of 11/12 soybeans sold to Egypt.

After the rally of the last couple of days the commodity markets tried to be weaker overnight with the outside markets.  Apparently the markets weren’t impressed with Bernanke’s talk yesterday.

My contacts were suggesting that even with the move over the last couple of days movement from the farm has remained very subdued.  PNW basis is back up at the highs from 3 weeks or so ago.  Gulf basis has firmed nicely this week, but still isn’t back to the highs from a few weeks ago.  Bean basis looks to be on a tightening trend as well.  All this suggests that grains are trying to divorce themselves from the outside markets. 

Beans are still a problem.  Egypt is our 6th largest bean customer this year with 1 mmt of purchases, but I don’t ever remember seeing them on a daily announcement.  Any sales on the front of a near $1 inverse tells you there is a need that can’t wait, but from a customer who you never see announcements from.  The USDA has deeply underestimated what old crop bean sales are going to be.  Based upon current estimates we would need to see cancellations and not new sales, but this week we sold 8 mb of soybeans and are now over the USDA export sales estimates by 21 mb already before this morning’s announcements.  New crop is just as a bad a situation.  The US is going to be the only supplier from harvest to March and there is going to be plenty of demand.

I had two different estimates about Russian wheat production this morning.  One guy told me 53 mmt, which would be a little decrease from the USDA’s numbers.  The other guy told me that less than 50 mmt is a 50/50 proposition.  I think the market would get pretty excited again if production falls below 50 mmt.

So the main question that we will come in and evaluate on Monday is where and how much rain fell over the weekend.  Here is last week’s drought monitor, followed by this week’s.  Drought is steady in most locations and building in IA, MO, IL.

See you on Wednesday.  Please call the office, 800-328.6530, with anything you need.

Joel Fitch
Market Analyst

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