Tuesday, February 12, 2013

Closing Grain Market Comments 2-12-2013

The grain markets had a mixed day; mainly an ugly weaker day behind technical selling and some moisture.

Old crop corn was down 6 cents a bushel, new crop corn was up 4 cents, old crop beans were down 11, new crop beans closed up 8 cents a bushel, KC wheat was off 10-11 cents, MPLS wheat was off 9 -10 cents, CBOT wheat was off a dime, equities were mixed with the DOW up 48 points closing above 14,000 for the first time since 2007, and the US dollar was weaker.

Today was the 8th losing day in a row for the nearby corn contract; I believe that is the most losing days in a row since 2010.  Bottom line is our markets are over done to the downside.  The bad thing is that there is nothing saying that
They can’t continue to be overdone as emotions in marketing and prices have the ability to really over do market moves; be it to the upside or down side.

Part of the pressure for the grains today came from the fact that most of the wheat contracts made new lows on the charts.  Lowest most of the contracts have been since June; so that means that anyone long the market anytime recently is underwater; thus we see guys saying enough is and enough and stops get hit adding further selling. 

The only real good thing the grains have going for them right now is the fact that the market is over done; also the fact that wheat has a history of making head fakes.  We still are not getting the business we need for wheat or corn.   Exports and demand is strong for beans; but China is also on holiday this week so we are not seeing the export headlines.

One other thing perhaps leading to some of the pressure has been some headlines of Barclays getting out of hedge fund activity in Ag Commodities.  Here is a link to article

Parts of Texas and Oklahoma are getting some moisture; not enough to break the drought; but another reason to sell wheat if you are fund who is long and wrong.

We really need to see the US get some wheat export business and from what I hear/read is we don’t look to get much; still not the cheapest wheat; especially for Hard Red Winter Wheat.  Keep in mind that we export roughly half of our wheat; so if we don’t export much we have room to have a small crop.

Basis is firm for the grains in general; but only due to a lack of producer selling; not new export demand or great ethanol margins. 

It was nice to see new crop corn and beans bounce a little bit today; but one typically doesn’t see a bull market lead by new crop.  Bull markets are suppose to be lead by nearby demand.  We have nearby demand for beans; but we also have a record South America crop coming off.  It should be tough for soybeans to really catch fire when South America is harvesting a record crop.  We don’t have a great demand story for wheat or corn.  Yes the ethanol plants in South Dakota are still running and yes we could hit the present projections; but despite the 40 some cent dip that corn has had I for one haven’t heard of great and improved ethanol margins or livestock demand for corn.    And we really need that demand story; be it exports for wheat, or a combination of exports, ethanol, feed demand for corn. 

As we look forward I think we need to realize the potential risk we have going for new crop corn values and the spill over effect that could have for soybeans and wheat.  Yesterday’s 10 year projection showed a carryout over 2 billion bushels; that uses a big yield number; but what it also does is use a big demand number.  Can we really only use 11 billion bushels or so of corn this year; and think that next year just because we have a bigger crop that we will use closer to 13 billion bushels???  That is what I struggle with the most; will demand bounce back as fast as we curbed it?

Another way to think about it might be; will producers take a cheaper price for their product just because they have a little more?  Or will producers still have plenty of money with good balance sheets, and bin storage that they hold off supplying the market quiet as much as they would need for that demand to actually bounce back?  I think that is how spring wheat happened just a year or two ago; we had guys wanting to buy; but neither producers or elevators had much interest and before we knew it the demand was no longer there.

The other big concern has to be history.  The past few years anyone that made new crop corn sales early; ended up missing the highs that came after we had the weather issues the past couple of summers.  So will that add fuel to the fire this year; a lack of producer coverage?  Guys that waited to make sales last year got rewarded big time. 

I realize that marketing in our area it is extremely tough; because we could see anything from 0 corn to 150 bushels or so; the crop insurance levels and cost isn’t as good as it is in the heart of the corn belt.  But our risk is still very high.

I guess the bottom line is to realize what our risk potentially is; and then try to develop a marketing plan that leaves one comfortable.  I prefer to see a bounce before making many sales; but perhaps a pro-active marketing plan is just getting some coverage on as time goes by; thus using exit dates?    The scary thing is the type of range we could be talking about; as many in the industry could give one valid arguments for corn to start with a  $3 or start with an $8; but reality is mother nature, the funds, and other unknown events will decide where our grain prices go or don’t go from here.  The only thing we can really do is try to be comfortable going on the ride before it takes off.

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1 comment:

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