Monday, April 22, 2013

Closing Grain Market Comments - Crop Condition Update

Markets closed weaker today.

Nearby corn was off 6 cents, July corn off a dime, new crop corn was off 14 cents a bushel, soybeans were down 10-18 cents, KC wheat down 6-8 cents, MPLS down 3-7 cents, and CBOT wheat was off 7-9 cents.  Outside markets have the US dollar about unchanged, DOW up 20 points, gold up 30 bucks an ounce, and crude up about a buck a barrel.

Ugly day for the grain markets; but we did see a couple positives.  First off most of the price action left charts sideway’s; other than new crop beans no new lows were made today.  Secondly all of the grains other than new crop corn did manage decent bounces off of their lows.  Third we did have spreads firmer for the most part today as the nearby May corn contract gained on the July contracts, as did the nearby bean contract gain on the July, same thing happened for KC and CBOT wheat, while the MPLS May-July spread was rather choppy at one time in the day the May had gained as much as a dime against the July; but at the end of the day it had lost about 4 cents.  Old crop corn also gained against new crop corn.

Spreads being firm is one of the grain marketing 101 things to watch; it shows a lack of nearby supply or good nearby demand.  In our case it might be partially because of a lack of producer interest; but any time the market is willing to pay more for the product today than they are a few months down the road it should be considered friendly because it shows demand.  When the market is willing to pay you to store the product because they don’t need or want it that is typically considered negative or bearish.  So today’s price action that seen firming spreads shouldn’t be considering all negative.

The headlines seen for today’s negative price action mainly include the old saying of “rain makes grain” and some comments of softer Chinese demand via the impact that the Bird Flu has had on poultry over there.

It doesn’t make a lot of sense to see our markets bounce a few days last week from the delayed planting conditions only to sell off for the same reason last night/today.  But that is the market; and the other thing that has changed is forecasts.  The most recent forecasts present a little window for some planting progress in the 6-10 day with mainly drier and warmer forecasted.  Plus the fact is that moisture has hit many areas so the drought card has been put on the back burner. 

I guess the thing to really keep in mind is the fact that we are in a weather market stage; one that could and should be choppy to very volatile.  One day they could be talking about flooding and acres not going in and the next they could be talking about the good moisture that the areas right next to the flooded acres have.  They could go from talking about a lack of heat units or growing days to things getting scorched.  It really will come down to what headline the funds want to focus on a given day.  We also need to realize that today even with the recent price breaks we do have some weather premium in our market.  If we really hit a corn carryout of 2 plus billion bushels do you think that we should be 5.00 plus on the board?  Bottom line is we likely remain volatile; but in the times of volatility likely come some opportunities.  Make sure you have a plan in place to help get yourself comfortable in your grain marketing plan.

Other news out today was mixed.  First sounds like another freeze threat tonight for much of the HRW area; but any actual damage will be a few weeks out or should damage won’t likely be known for a few weeks and in some areas not until the combine hits.  Some guys ask how come wheat isn’t going up with the horrible crop and the recent frost scares.  The real question we should probably be asking our self is how low or ugly could wheat price get if the frost scares don’t materialize into any quantified damage?  On the flip side if the market is really under estimating the damage and potential production loss and we have decent demand or increased demand from China or other parts of the world perhaps wheat is really a sleeper?  I lean towards wheat being a sleeper but for risk management purposes want to realize that depending how things shake out with mother nature (very unlikely for wheat to be strong if corn loses a buck or two) as well as the funds there is plenty of down side risk potential.

This a.m. we also had export shipments out and they didn’t help out our markets.  Beans came in at the lowest we have had all year; but still fairly close to what we need on a per week basis to meet current USDA projections.  While wheat and corn export inspections were in line with estimates they were below the needed per week numbers to meet USDA projections. 

This afternoon we had crop conditions and crop progress.  Corn planting came in at 4% up 2% from last week; I didn’t see the estimates but it was in line with what I was looking for.  I would say it is friendly and opens the doors to planting delays which leads to yield loss; but I don’t know that is a discussion for now but perhaps a couple weeks from now if things are still lagging behind.  Our 5 year average which is a little skewed from last year’s face pace is 16%.   Last year the market failed to consider the fast planting pace negative because for planting to be ahead things have to be dry and or warm.  But this year or today the planting pace being behind isn’t bullish either?  I guess it depends how you want to look at the glass; half full or half empty and that is why our markets can be challenging at times.

Spring wheat planting happened on the PNW but that was about it; as it increased to 7% up 1% from last week; but also well behind the 24 % on average.

Winter wheat conditions also drop 1% in the G/E so that also should be supportive to our markets.  The thing with planting progress and conditions that we have to keep in mind is that it is old news for the most part.  We all knew a week ago that not much was going to happen this last week based on the forecast.   That’s why perhaps it makes a little sense for our markets to have some pressure on them when we see forecasts that are called for slightly warmer and drier thus allowing some progress to happen.

Basis felt undefined to me today; many bids have rolled or are rolling from the May to the July and it seems like no one needs much for nearby supply for any of the grains.  But it also feels like we are 45-60 days out before we see any producer supply wanting to come to town.  So perhaps basis is a in a standoff. 

Birdseed market was very quiet today; not much for bids or offers.  New crop millet is feeling a little pressure with much of the millet areas getting hit with moisture and buyers already having a decent deck of coverage on.  The guys that are short are trying to push things down; while with the market falling no one really wants to put a bid out their either.

Longer term it does feel like we have some downside risk to some of our grains; lead by the idea of new crop corn production.  As I mentioned a few times in the past few weeks if we have a decent crop at all we will have to find more year over year demand then we have ever found in history.  I don’t view that as an easy job nor a job that gets done via higher prices.  Increased demand typically comes via lower prices; at least that is how I remember it from ECON 101.  So just keep in mind that rallies should be used to help take some risk off the table.

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