Friday, April 12, 2013

Opening Comments 4-12-2013 - China Demand

Markets are called better this a.m. behind a firmer overnight session.

In the overnight session corn was up 4-5 cents, soybeans were up 6-7 cents, KC wheat was 7 higher, MPLS wheat was 6-7 higher, and CBOT wheat was up 7-8 cents.

Outside markets have a slightly firmer US Dollar, while equity futures are pointing to a lower start of about 40 points in the DOW, gold is getting hit hard down 29 bucks an ounce, and crude is off 1.90.  Overall outside markets look like risk off and that could open the doors to a little profit taking for the grain markets to end the week.

Sounds like the International Energy Agency trimmed its global demand growth estimate.  Keep in that the markets have been talking for several months about an ethanol blend wall; basically that we can’t use much more then we already are.  Bottom line is both should be considered long term demand risk; that could lead to lower prices should we find a big crop or extra supply.

A Reuters article indicated that a well respected climatologist saying the drought is likely to persist and expand; leaving ideas of below trend line yields once again.

I seen a comment on a wire this a.m. that China’s recent purchase of US wheat may be a reserve building move.  Sounds like many expect China to buy even more for their reserves to fight food inflation.  Bottom line is this leads me to think that perhaps the increase seen in global stocks is an increase that the market won’t see.  Basically it could make it come off as China having to have an increase just to be comfortable.  With the country growing and using more of everything perhaps they no longer feel comfortable with the amount they have always had.  Think about it this way; if you are single living by yourself how much food do you need to have at home?  Now if you have a family of 4 or 5 with a teenage kid or two; how much food do you now keep on hand? 

I did see a headline today that a bi-partisan group of Representatives is introducing legislation to eliminate corn based ethanol from the RFS.  That has to be considered a headline risk for corn; but keep in mind that if ethanol is profitable plants will be running.  Bottom line short term negative as it is a headline for the funds to sell; but longer term it probably doesn’t matter.  What could matter is if they get a 10% cap like they are talking about.

NOPA crush is out on Monday; that will give us a better idea if soybean demand is slowing

Weather remains supportive; with markets still wondering what damage was done to the wheat on the latest freeze and plenty of areas that simply are a few weeks away from getting much field work done.  Keep in mind many of the areas that are behind getting stuff done is because of recent moisture.  Cool weather is one thing; but moisture should remind us of the old saying rain makes grain.

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


Jeremey Frost
Grain Merchandiser
Midwest Cooperatives

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