Thursday, April 4, 2013
Closing Grain Market Comments 4-4-2013 - Grain Prices
The grain markets got beat up today in a choppy rather news lacking day.
Corn was down 12 on old crop, new crop corn was unchanged, soybeans seen new crop unchanged, while old crop beans were down 8 cents a bushel, kC wheat was down 14, MPLS wheat was down 5, CBOT wheat was off 3, equities bounced with the DOW up 56 points, the US dollar is back to about unchanged which is a big reversal from earlier trading, and crude ended the day down about a buck a barrel also about a dollar off of the lows.
Ugly day for the markets in general; but a couple of decent things did happen. First off the US dollar got to its highest level since last July and managed to leave a Doji on most of the charts while trading above yesterday’s highs and yesterdays lows leaving a reversal on the charts. Some would refer to it as a key bearish reversal as we had made a new high for the move and closed lower; other text book technical wouldn’t say it is a key reversal because we didn’t close below yesterdays lows. Either way it is a sign that perhaps the dollar strength is due for a breather and that wouldn’t be bad for the grains.
We need something to get some money flowing back into the grain markets to help stop the bleeding from the USDA report and a pull back or weakness in the US dollar which in turn helps makes our commodities that were are trying to export cheaper and leads to a risk on type attitude by the funds can be a start.
The other positive today that I seen was beans able to bounce well off of their lows and CBOT wheat hanging around despite all the other weakness around. Perhaps CBOT wheat hanging around there was simply spread unwinding but CBOT wheat has always lead our bull market rallies.
News out is that China bout 14-16 cargo’s of Soft Red Wheat; which could have also gave support to CBOT wheat; but at least that is demand support. Nothing wrong at all with wheat bouncing from end user demand.
Exports sales were out this a.m. and they were nothing special for any of the grains. Wheat came in at 5.2 million bushels of old crop sold; which is about ½ of what it needed to be on a per week basis to meet current USDA projections. Beans came in at 14.4 on old crop which is about 3 times what they need to be and the best in 3 weeks. Corn had its best week in 5-6 weeks at 13.9 million bushels which is very close to what it needs to be on a per week basis to meet present USDA projections.
We have started to see more estimates out for next week’s USDA report. It seems like most are looking for a 200-400 million bushel increase in our present 632 million bushel carryout. Not sure what the market is trading right now; but a dollar plus break in the board to me seems like they might be trading nearly all 400 million bushels. (Hopefully that’s not sure wishful thinking.)
Here is a link to the CHS Hedging estimates.
You will notice they have corn carryout at 857 versus USDA at 632. Beans unchanged at 125 and wheat at 706 versus 716. The report will be released Wednesday the 10th at 11 am central time.
I haven’t see all the estimates to know were exactly the average trade estimate is at; but I would guess based on the April stocks report that most estimates will be for rather decent increases for all three of the grains. The good news is that hopefully any increases will already be priced into the markets and as the USDA shown us last week they can always throw curveballs that are not expected.
The most realistic or possible curveball for next week’s report looks to be a friendly curveball because the market has priced in bearish news. Last week everyone was looking for a bullish report and the USDA has that ability to do what most think it won’t. Maybe that is a stretch but it is possible that next week’s report does exactly what the last one did; catch as many off guard as possible. We mentioned before last’s weeks report that a huge amount were bullish (……… “that also left me feeling a little cautious. First off the strong close by corn seemed to come from the funds and idea’s that this week’s report will be bullish. The only bearish forecasts I have seen for the report are those worried about the fact that everyone seems to be bullish on it and I land in that camp”………) now as producers the only thing we can really hope for is that the funds lean a little too hard too much to the selling side and then the USDA throws another wild card our way; but this time hopefully bullish or just not as bearish as everyone is looking for. Realistically it will not be bullish versus last month; but it could be bullish versus historical and it wouldn’t take much for it to not be as bearish as the crowd is looking for.
Having said that I don’t think I would be recommending to guys to go out and buy things back on the board right now. If you want to play that game the right way is probably just via cheap call options as volatility is fairly cheap right now due to the skew that happens in grain market weakness. Along those same lines just owning some puts in case the USDA was right and decides to take the whole 400 million bushel increase in carryout at once might not be a bad investment or at least a move that allows one to be comfortable.
The other thing we really need to keep in mind is that if our old crop carryout’s have increased as much as some are talking weather becomes less important for new crop prices via the fact we have a more comfortable starting spot. That doesn’t mean we can’t or won’t have weather scares; we could have plenty and hopefully do have some power filled ones. But supply and demand rules in the end and carryout’s of the 2.00-3.00 billion bushels like some are talking about for new crop are not bullish.
On the flip side of things one might ask how much demand does a dollar a bushel break add back in?
Elsewhere basis for wheat feels softer. Spring wheat spot floor was rather weak today as it seems like some railroads are really catching up in a hurry. Winter wheat basis is also a little defensive but the positive should be that some flour pricing has occurred and should continue to occur should the board continue to break. Corn basis is choppy. Still hard to find nearby homes; but I have also sold more the feed industry in the past few days then I had for a couple months combined so there is some end user pricing happening.
Sunflower market and birdseed in general feels like demand is decent but bids and offers are still wide and buyers simply don’t need much yet. Supportive is the fact that the crush is competitive with the birdseed market. Also new crop should be supportive as the acres came in a little light and more acres went to confections.
We are still offering free delayed price storage on wheat, corn, milo, sunflowers, millet, and soybeans at our locations. Call for more details.
As guys get ready to get busy don’t forget to give us indications on the levels you would like us to call you about. Many grain marketing plans make sales over the next couple of months because typically we add some weather premium into the seasonal price tendencies.
Please give us a call if there is anything we can do for you.