Thursday, March 21, 2013

Closing Comments 3-21-2013

The grain markets closed mixed today as beans and wheat reversed rolls today.

Wheat was off 7 cents in CBOT wheat, MPLS wheat was down 7 cents a bushel, KC wheat was down 6 cents a bushel, soybeans bounced rather strong today up 29 cents, and corn closed up ½ cent on the May contract while July was unchanged, and new crop December corn was up 1 ½ cents.  Outside markets had some pressure with crude off about a buck and the stock markets under pressure with the DOW closing off 90 points.

More and more estimates are coming out for next week’s USDA report.  Keep in mind that these stock reports have had a history of limit moves.  The one we had this last January was tame; but this is the report were the USDA seems to find or lose 200-300 bushels of corn regularly.  My personal bias on this report is it will be similar to the January report and won’t be a major market moving event.  But just thinking that could be a little dangerous.  As to how it shakes out; right now the market is looking and seems to be pricing in a bullish type report for corn and beans.  So if that trend continues it might take a very bullish report to not be disappointing.

Besides the stocks report we will also have planting intentions; but I look for that to take a back seat to the stocks.  You can read or listen to hundreds of reasons for both a bullish or bearish report and when things are all said and done and the numbers come out the report should be one that says “we are off to the races because of the tight balance sheet that just got tighter” or the price slide from the summer highs should now continue because we curbed enough demand. 

The bean number might be as important or perhaps even more important than the corn number; but it is also much more known because we report exports and crush on a regular basis.  While the corn usage for ethanol and exports is known; the wild card and reasons for the swings in recent years has been the feed usage or other usage.  Bottom line is in my opinion the bean number could be very tight but I don’t think the number will set the stages for bean prices over the next several months.  I think what China does or doesn’t due will influence beans and I think the tightness in beans will show up in basis. 

For corn old crop prices direction could easily follow the report direction for a couple months; as the report will really be the only big headline for old crop other than new black swan events.  We will have the regular ethanol updates and export updates; and we will see what margins are doing but we won’t know until the June report if the market did it’s job finding additional demand or curbing demand.

For new crop the acres take a back seat because it really comes down to weather.  Now acres can be important and if we have an extreme above or below estimates it will affect the markets but the bigger effect will come from what weather does to yield.  Bottom line on new crop is it might be very hard to sustain a major rally if the acres are any place between 95-100 million acres of corn planted; because anything close to trend line yield produces a crop between 13.5-15 billion bushels or so.  This year we will use only about 11 billion bushels; so to find 2.5 to 4 billion bushels of demand will be very tough.  That’s not to say that say that higher prices can’t happen; but it won’t be easy without a repeat of last year’s bad weather.

One thing heard today that I found interesting was that some 72% of producers thought new crop cash corn wouldn’t go back below $5.00.  I find it interesting because most advisors are liking the idea of making sales and it seems to me that we have too much unsold new crop grain.  I think we have a huge longer term risk in prices should we have a good growing year.  Does it mean guys should be making sales here?  I am not sure; I think we should on a small bounce; but more than anything we need to realize the huge possible risk we have out there.  So no I don’t want to be making tons of sales right here; but I want to realize that every day that goes by getting us closer to new crop my prices objectives probably should come down and premium will eventually fade out of the market. 

As for other news out there today.  We had export sales out; which were horrible for corn and beans.  While the wheat number was good; but just in line with estimates.  Not enough to help wheat turn around the weakness that it had starting last night.

Basis is still under a little pressure; the recent bounce on the board just has a little more supply then demand for corn and wheat both.  We are very close to really widening out nearby corn bid because we can’t find any homes.  I think the coverage for later on slots is smaller than ever.  I have basically zero corn sold for June-September typically I already have a decent deck on.  So end users are basically hand to mouth; which is good and bad; but very volatile.  When they get covered nearby like they are presently bids just start to drop.  Buyers or elevators then look for the next slot; which in this case is also covered.  Then they look at June or July as example; but most producers and elevators don’t have interest selling June at a discount to the nearby bid; especially with as tight as corn is suppose to be.  So you just into a stalemate or waiting game.  Elevators and producers get long upfront hoping for basis to appreciate at sometime; which likely happens if the board goes under pressure or supply stops.  But as long as the supply or selling continues basis stays under pressure and if it continues to happen for an extended period of time guys will obtain too much length and be force to sell it thus push the basis weakness out even further.  The other very interesting basis thing happening is where the final corn product is ending up.   I would say only about ¼ to ½ of our corn over the past several months has went to the same end users that bought it the past 3-4 years.  Part of that is bigger crops around our traditional end users; but part is the lack of crops in other areas.  This might mean that later on our area gets tight and basis has to do some work to keep or get the grain coming in.

Bottom line is look for basis to be very choppy and very volatile.

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

Jeremey Frost
Grain Merchandiser
Midwest Cooperatives
605-295-3100 (cell)
605-258-2166 (fax)

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