Monday, January 7, 2013

Closing Grain Market Comments 1-7-2013 USDA Supply and Demand Report Week

The grain markets started off on the right foot today with a  small little bounce.

When everything was said and down corn was up 5 cents on the nearby to 3 on the deferred months, beans close up 21 in the March contract, KC wheat was up 3-6, MPLS wheat was up 5, CBOT wheat was up 4, the US dollar is off 250 at 80.360 on the March contract, equities gave back a little today with the DOW off 51 points, crude, and gold where both near unchanged.

Dead cat bounce in oversold conditions is what described today’s bounce.  No real new news but a bounce off of the oversold conditions.  Perhaps some position squaring ahead of the USDA Supply and Demand report which is out on Friday.

Our markets got a lift Sunday night once the Chinese markets opened; they then stayed firm until about 9:30 when the pit opened and then traded choppy for much of the session before closing on the firm side.  Overall not a bad day; but really not great either as both corn and wheat where a good 5-10 cents off of their highs; beans closed solid.

Technically the bounce in beans might leave some talking about a double/triple bottom and a bounce off of trend line support.   The charts for corn and wheat have a small positive with today’s bounce; but we really need more than one day to call a bottom.  I would say things are very overdone and a bounce could happen at any time plus we seem to have most everyone in the market very bearish.  Things always look the brightest at the top and the darkest at the bottom.  Also if we look back a few months ago when wheat was trading around 9.00 for cash wheat and one talked about what would it take for us to have $10 or $12.00 wheat……….we would have said something to pick up the demand.  We would have said that we really need to get demand and the US needs to get some export business.  Well that is finally starting to happen; we have seen a small uptick in demand for both corn and wheat.  We are much more competitive today then we where a month or two ago.  Now is it enough demand for us to bounce?  Probably not by itself; but if that demand can slowly continue to increase it does give us a chance for a tighter balance sheet as we go forward.

I would say that in my opinion for wheat to be a really bull market we need a headline; and I don’t think us getting the export business we need to get is a headline.  The headline is still probably our bad crop in the ground; that is the one of the headlines that the funds and big money could jump on at some time.  But that really won’t be a headline for months; so in the meantime if we can pick up some demand we are not going to hurt our fundamental outlook. 

Bottom line is looking back our wheat outlook potential really should not have been hurt by the price break.  Now what is scary is what happens if that potential never turns into anything?  I think that is why marketing grain is so difficult; all of the unknown factors and the human emotions of greed and fear.  So don’t be afraid to take a step back and look at the bigger picture and if you have high priced targets ask yourself how can we get there.  If the only way to go higher is take a step or two or three backwards first will you be able to hold on during the step back when you know that the funds and money flow love to overdue grain price moves?

So looking forward one probably needs to ask what will happen for new crop values.  Corn in particular; what will it take to really get a rally going?  The answer is it will take a weather scare and probably the funds leaning the wrong way; talk of 4.00 corn; maybe talk of 3.00 corn.  In the very near future we will likely start to see extreme talk.  I noticed one advisor talking about $8.00 soybeans this week.  So if we are going to rally we will need to get guys leaning the wrong way which we might already be close to.  We then probably need prices at levels that attract some demand; which we might be close to.  But we also need a weather scare or some sort of fundamental catalysts that will drive buying.  Without that catalyst and with perfect weather there will be tremendous pressure and talk of lower prices as we go forward unless the USDA gives us a reason or tells us our fundamentals are much tighter.

So if we know today that with everything unchanged the path of least resistance is probably shorter term to the downside; what should we be doing today?  For some you might want to get a little pro-active for others perhaps you ride out the storm and wait for that weather scare rally or fundamental change.  Bottom line is today and for some time we have known that in the very near future talk will be of 150-160 bushel corn on 95-100 million acres; which will leave balance sheet expectations with a massive carryout. 

I have got a little off of center here; so I want to bring my focus back to this week’s USDA report.  As that is the next risk and possibly reward that our market has.  Idea’s are for an unchanged corn carryout numbers at 647 million bushel carryout.  I have seen many that think we could see harvested acres cut; but overall most look for production to be very close to the last estimate.  Most have exports coming down; but a few have feed usage up.  Bottom line is the trade seems to be looking for no change in the corn carryout.  Overall I would say that the market is looking for a neutral to bullish report for corn with the big wild card number really being feed/residual usage.  Normally if we are looking for a bullish report one would think the market has been firming up; but that hasn’t been the case for the past couple months.  So that is a little scary.

As for beans the latest estimate I have seen was for a 5 million bushel increase in carryout.  Neutral in my opinion.  I don’t think an overall carryout of 135 is bearish; but what could be bearish is the South American production forecasts.  Most are looking for an increase.

Wheat is expected to see a small decrease in carryout; but also an increase in wheat seedings. 

As we go into the report the main thing one wants to do is get themselves comfortable no matter what the USDA decides to say.  For some doing nothing is fine enough; for others have some sold or protection in place might be the right move.  What is scary is the fact that every year since 2007 corn has traded limit up or limit down following the release of this January report.  A limit down move following the 1.70 or so that we off of the highs is scary.  Perhaps just as scary is that a limit up move only get’s back about 1/3 to ¼ of what we have lost. 

If we happen to be limit down will many guys be forced to make some panic or fear sales?  If we are limit up will guys be holding off for more?  There is nothing wrong with waiting and seeing that the report says about future price direction and fundamentals but one might also want to be prepared for their next move no matter what curve gets thrown our way.

Overall the message of today’s comments isn’t to be scared into buying protection or making sales; nor is it to say that we shouldn’t sell anything down here.  It is more to be pro-active and get one’s self comfortable in our roller coaster market.

This week Wednesday at 3:30 we will have our MWC Marketing Hour Round Table meeting in Onida; at that time we will go over various strategies ahead of Friday’s report. 

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


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