Monday, November 12, 2012

closing comments 11-12-12

Markets got hit hard today.

Corn was off 20-21 cents, beans where off 46, KC wheat off 32, MPLS off 26, CBOT wheat off 29, crude, the US dollar, and equities where all near unchanged.

Bad risk off day for the grains; a spill over from Friday’s report with technical selling lead by the bean market.  The weakness for beans is also coming from South America weather and Friday’s report that showed a big increase in production.  Beans are now at their lowest level since late June; basically gave back nearly the whole drought rally.   

One positive we have is that if ECON 101 still works lower prices cure lower prices; so demand for our grains probably hasn’t been hurt by the lower prices.  But one question you have to ask is; can end users buy the product easier today than they could last week?  You did have ethanol go down a little today along with corn; and with a softer board it probably takes a better basis to see corn come out.  I have seen many say over the past couple months the lower we go on price breaks the higher we go later and I am not sure if that is the case if the product actually won’t trade lower.  As example with our recent price break producer selling has really slowed down; so lower prices might not be completely helping the end users if they can’t get the product.

As for news today; we really didn’t have any new highlights to cause the markets to get beat up so bad; just a combination of Friday’s report, South America weather, and Technical selling.   One thing that could have lead to more technical selling today and fund liquidation in general was the holiday.  Many banks where closed so wire transfers didn’t happen and if one was long out of Friday’s report and had a margin call there might not have been many options depending on how firm the margin calls where.  

Export shipments and crop progress was delayed due to holiday.  Look for the same theme however of very good bean shipments with wheat and corn not so good; part of that is just the fact that the whole infrastructure isn’t able to handle all three commodities at once.  Take a look locally at the elevators; we don’t ship much if any wheat during fall harvest and we never ship any row crops during wheat harvest.  So I don’t view the lack of shipments too important for corn and wheat right now; we are not at the historical time when we see heavy shipments.  Sales however really need to pick up sooner than later and this weeks bean sales will be important as well; because last week they were not very impressive.

Basis didn’t feel any better today despite the weak board; I would say it was firmer either just undefined for most markets(corn, winter wheat, spring wheat, milo).  The MPLS spot floor didn’t even have a single car for sale.  Seasonally we are nearing the time when wheat basis heats up into Holiday Baking season; so perhaps now isn’t the worst time to have some basis offers out there.  But to really see basis get wild we need to see some export business happen; the same thing we need to happen if we want to see the wheat board run.  Until it does wheat is starting to look a little over priced when you consider how far off the summer highs beans are it makes wheat sales look good.  Don’t get me wrong there remains plenty of upside potential for wheat; but without the funds backing it along with a  headline story and solid demand wheat is more than fair priced.    Keep in mind that early September KC wheat was a 8.35 discount to Soybeans on the board; now that discount is only 5.18; so reality is that even though there is some potential upside for wheat there is also plenty of downside risk should corn and beans continue to see pressure.

The birdseed market is also very soft; demand is light and the soybean complex isn’t helping out at all.  End users lack coverage but also are showing very little interest.

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