Monday, January 28, 2013

Closing Comments 1-28-2013

Markets closed firmer today after having spent most of the session trading choppy.

Corn lead the way firmer up 8-9 cents on the front end, with new crop up 6, soybeans gained 7 cents a bushel, MPLS wheat was up 2, KC wheat was up 3, CBOT wheat was up 3, the equity markets where mixed with the DOW off 14 points, the S & P off 3 points, the NASDAQ up 6, the dollar is about unchanged, and crude up about 60 cents a barrel.

Not a bad day for the grain markets; but we still remain rather range bound.  Technically about another nickel on March corn could open up some more strength. 

The strength today seemed to be two fold; a little from the weather as it remains very dry in most of the US especially the HRW areas; while some parts of Argentina look to have some heat with dryness; while other parts of South America are seeing harvest delays; perhaps keeping the US in the export game for soybeans. 

The second reason for the strength had to be the good export shipments.  Beans remained good which is no surprise; but the surprise or good thing was the corn shipments at 21.1 million bushels.  The best since September and right at about what we need on a per week basis to meet USDA estimates.  The wheat number also came in slightly above 20 million; a little less then we need but an improvement over the past few months.  Personally with the way logistics and elevations work I think seeing corn and wheat above 20 million with beans still above 40 million is good.

Also heard of some improving ethanol margins over the past few days.  Stronger cattle prices also gave a little support to the corn market.

Overall I think corn still needs to prove it can find demand or stabilize demand at these levels for all of our users.  Ethanol demand overall looks to be a little weaker with a Poet Ethanol plant shutting down recently in MO.   But also seen a local article that indicated some local ethanol plants thought the way to make it through tough times was via increased efficiencies or grinding more thus lowering the overhead per unit cost.

As for other news don’t look for many known headlines; perhaps a black swan event or two; but the next known headline will be the USDA crop report February 8th; which is a Friday.  We will then see if the USDA has seen many reasons to increase or decrease our demand; but typically the February report isn’t one filled with huge surprises as we just did the January that included the quarterly stocks recap.  The February one could show some adjustments for crop sizes around the world; mainly South America and right now if I had to guess I would say most are leaning towards a little bigger bean crop with perhaps slightly smaller corn crop. 

After that we will have the USDA outlook towards the end of February and that is where we could see some more talk of 95-100 million acres of corn with perhaps trend line or better yields.  I don’t think many producers will agree with the numbers that come out; but the risk is that some funds (big money) agree and see it as written in stone.  Some of the bulls will continue to talk about the drought; but most will put that on the back burner until later in spring as a matter of a fact a drought early spring might mean corn planted fast and that was one reason the USDA had to increase the yields in the May/June reports last year. 

I guess what I am trying to say is right now where I sit it just looks like we have the stages set for some sort of repeat of last years price action over the next couple months.  First off we just don’t seem to have the funds looking to get in and get long grains.  If that can happen at some point for some reason then money flow can overweigh the perceived fundamentals.  But if we look at fundamentals we simply have many starting to talk about and play the big crop coming card.  The scary thing is that without a repeat of last years weather they are probably right.  We simply look to grow plenty of supply especially if the market has done it’s job and curbed demand.  Meaning that demand that we had won’t come back overnight; it might not even come back all marketing year.

As for the reality of what could happen; that remains up in the air.  A perfect growing season gives us potential for corn under 4.00.  While a repeat of last year or worse probably gives us potential for 10.00 corn or more.

Adding a little fuel to the fire has to be both the producers and end user situation.  I don’t have an end user of corn calling me up looking to book new crop.  They all think we are hitting 100 million acres with 160 plus yields leaving a carryout of over 2 billion bushels.  While on the other hand I think most producers have far less marketed/hedged/or protected then they perhaps ever have.  Because of what happened the past couple years where any early sales simply looked bad.  Plus the fact that our conditions are starting far worse than a year ago.  No subsoil for most of the western corn belt doesn’t give us record corn yields.

I don’t know which group will be right; whether mother nature will allow us to grow a huge crop or a small one.  All I see is that at this second we seem to be set up for a volatile ride.  One that could be straight down or straight up.  

As for the other grains I really feel were they go simply depends on corn.  I think the potential for wheat to be much higher is there today; but if we see a huge corn crop I just don’t see wheat being at 10.00 or 12.00; nor do I think beans  could with stand tremendous pressure from the corn market.  Corn is king until proven otherwise; so that tells me that there is still huge risk potential for those guys that are growing wheat.  To think that there isn’t a couple dollar risk just isn’t accurate.  Add that to the fact that we might only have ½ of  wheat crop if we are lucky and we could quickly see things that are not exactly printing profits. 

Bottom line is some sort of risk management should be used.  I am not here to see sell everything or sell nothing; more so I want to promote using risk management that gets you comfortable.  So I think that means a pro-active plan that includes some exit dates to either make some sales or get some protection in place.  Don’t save everything for the last minute or  you could either be a hero or a goat.

If you want to put together a marketing plan please give myself or one of the guys in the office a call.  Don’t forget we are a CHS Hedging branch so that allows one to use tools like simply buying puts for protection or maybe making some sales and buying out of the money calls so you don’t miss the next big rally.

As for other things happening today it did feel like wheat basis was a little defensive.  But I would note that the railroad has slipped a little bit; I didn’t receive cars at any of the 4 locations that I thought might over the weekend and sources say that car supply is a little tighter then it has been. That could lead to a little premium getting added to basis in a hurry; but freight will need to slow down for a few weeks before we see any major pop as most mills have been very full.

The birdseed market is steady; with some buyers looking for some offers but overall on the slow side.

We do have a couple buyers now willing to do some new crop act of god millet contracts.  Please give me a call for more info on those.

Don’t forget that we will have our weekly MWC Marketing Hour Round Table this Wednesday in Onida at 3:30.

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

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