Thursday, January 17, 2013

Closing Grain Market Comments 1-17-2013

Markets closed weaker for the grain markets today; despite supportive outside markets, and decent to good export sales. 

When everything was said and done corn was down 6-7 cents, beans were off 6, KC wheat was down 5-6, MPLS off 2, CBOT wheat off 4, equities bounced with the DOW up 85 points as the S & P got to it’s highest levels since December of 2011, the dollar is near unchanged, crude made 4 month highs up over a dollar.

Very disappointing is how I would characterize today’s price action.   For the first time in a long time we had export sales hit what they need on a per week basis to hit USDA estimate for all three of the major grains and we had a risk on type of outside markets.  The export sales helped our markets push higher when they came out; but we couldn’t manage the strength.  Keep in mind that corn had 7-8 up days in a row before today; so our markets were a little overdone.  But still it is disappointing anytime you see good news and can’t trade higher.  Soybean sales were as high as they have been all year; yes the biggest export sales week we have had all marketing year; so another disappointment that we didn’t close firmer.

Looking deeper into the export sales and you do find info that maybe helps explain the sell off.   First off the export numbers are for business done last week and even though they where good it isn’t like the corn and wheat numbers where off of the charts.  The business was announced last week so the sales good where not well above expectations.  One other thing to look at is the fact that last week was a big USDA report week; now we stress to producers to take risk off the table ahead of major events like that so it only makes sense that buyers or end users did the same thing.

The real negative for export sales has to be the HRW sales; the SRW sales which would be CBOT wheat where great; but actual hard red winter wheat like what is grown around here were still horrible only about 1/5 of what we need on a per week basis to hit present USDA export projections.  So the one that we really need the demand for still is missing the demand.

Speaking of demand yesterdays news mentioned a couple of ethanol plants in NE shutting down until market conditions improved.  Yesterday’s ethanol production numbers were also reported to be the lowest since 2010.  So I think the past day or two we have seen a little shift in the headlines from a tight balance sheet that might get tighter to focus on the rather poor margins for the ethanol plants.  One commentary that I listened to today said that as many as ½ of Iowa’s 41 ethanol plants could be idol by July.  That sounds like a little too much demand getting curbed.

One positive I had for the ethanol industry is the fact that today I had an ethanol plant looking for a little April – May corn.  I don’t think he cared for the levels I would be a seller at but at least he is looking.  We also know from history that if they run most plants run 100% because they just have way to many issues if they try and run ½ speed. 

Bottom line is we really need to watch what the ethanol plants do or don’t do and how the headlines effect what the funds decide to do.  I think presently one could argue that ethanol usage pegged by the USDA to be fairly accurate; with potential to use more or curb way too much should some start shutting down.

Last thing on corn to watch is what the ethanol markets due to basis.  Meaning that corn basis has both tremendous upside but also tremendous downside risk.  We are simply seeing lots of corn usage shifts happening.  As plenty of corn is not going to the same end user destinations as it has in the past and that comes from the regions that had poor crops as well as the regions that had better then expected or better than the past couple years crops.  It should and likely will cause huge swings in basis as buyers go into a different area to pull corn causing that area to see basis on fire; but then coverage happens or demand slows and that could cause basis to go under heavy pressure. 

The wheat market to me feels heavy; yet wheat also feels like it has the most potential.  I just don’t think that the wheat market can realize much if any potential until demand hits us.  Export demand for HRW in particular; that is the wheat that we have the supply issue with for next year and that is the wheat that we need to sell over the next several months if we want to see a bullish wheat market.  (In my opinion)

Exports are far more important for wheat then they are for corn.  We export 10-20% or less of our corn in a given year; while it is some place closer to 30-60% getting exported.  So fundamentally exports are much more important for wheat and that means that export headlines or lack there of probably have even more effect on what the funds do.

Technically our markets look much better than they did just a week or so ago.  But we are also overdone in some markets and we have neared resistance levels.  The next few days should help us determine if we are still in markets where the rallies should be sold or if we are turning the stage to markets where the funds and end users will buy the dips.

I believe INFORMA will update new crop acre numbers tomorrow; so watch out for that.  Most likely they will not be printing very bullish numbers; but rather them and most of the market will start off talking big acres with big yields.  Realistic or not.

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

Jeremey Frost
Grain Merchandiser
Midwest Cooperatives


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