Friday, April 26, 2013

Opening Comments 4-26-2013

Markets are called a little weaker this a.m. after an overnight session that saw some pressure.

In the overnight session corn was off 6 – 7 cents, KC wheat was down 5-8 cents, MPLS wheat was off about 3 cents, CBOT wheat was 5-7 lower, and soybeans were down 3-8 cents.  Outside markets have the stock market pointing towards a lower opening, the US dollar is off with the cash index at 82.570, crude is off about 55 cents a barrel, and gold is up 5.50 an ounce.

Yesterday wheat had a decent day lead by KC wheat; let’s see if today when the pit opens if the market can go back to focusing on what it did yesterday and the same reasons producers haven’t had much interest selling.  Bad looking winter wheat crop that has been hit with drought stress and lately freeze threats; that along with the lack of spring wheat planting should give the market a little support; but that news has been out there for some time.  What really matters is if the funds want to focus on the fact that wheat (hard red winter wheat in particular) could be off dramatically; or if the funds want to focus on the fact that even with a small winter wheat crop we likely have a burdensome balance sheet or at least not a tight one simply because of the old crop carryout and the world balance sheet outlook.

Bottom line for wheat is we could easily continue a short term bounce or weather scare; but without solid demand if we get a 50 cent to buck bounce one really should be taking risk off the table.  Perhaps some sales should have been made on yesterday’s bounce?  I think I would want to be a little patient with next week’s crop tour; but I also want to realize that any major rallies probably need to be met with good risk management.  Some of the reason for proper risk management for wheat is the new crop corn risk.  I don’t view the new crop corn risk as really nearby; I think we will have to get through the growing season; probably all of it.  Some out there having been predicting corn to get down to 4.00 some as cheap as 3.00 and I don’t think we can have 3.00 corn and 8.00 wheat……perhaps it is possible but not very realistic.

The real question that we really don’t know is what is fair corn price on different production levels and different carryout levels.  It seems like we have a 5.00 ish floor when the market is thinking we have about a  2 billion bushel carryout; but is that the floor with some premium added in?  What I mean by this is the last couple years 5.00 has held as support for new crop; then when we had some issues we bounced.  If we don’t have any issues will 5.00 stop the bleeding that we presently have going on for new crop corn?  I don’t know that answer and I think that is really our risk.  What will money flow do if at the end of the day we actually end up with a carryout 2 billion or so; what about if production is really good and our carryout ends up closer to 3 billion?  How cheap could wall street push our prices?

So back to wheat; yes I do look for some strength as they report the crop conditions.  Fundamentally we don’t exactly have a run away HRW crop; we have one that has been hit by numerous freezes, had the worst even starting conditions, and hit by one of the worst droughts on record.  But with out demand that will only take us so far and our longer term risk will be the ag markets in general.  With lower wheat production wheat should or could easily out perform some of the other grains; but how much risk do the other grains hold for our wheat market?

Bottom line is wheat is a sleeper but for it to pan out we will need to have some help in probably numerous ways.

Other news out this a.m.  It sounds like a BACE still has the Argentine soybean crop at 48.5 MMT versus the USDA at 51.5.; they also lowered the corn crop to 24.8  versus the USDA at 26.5.  But IGC also lowered the imports of beans for China due to demand concern via the bird flu issue.

Weather does look like it gives some opening for some field work in some places over the next week or so.  Some guys locally sound like they might try things today.  Look for Monday’s progress report to be friendly; but also realize that the newest forecasts will likely act as a trump card over what is or isn’t done in the report. 

Today is option expiration and first notice day is next week.  One thing next week should bring is how strong the cash markets actually are via delivery. 

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