Thursday, May 30, 2013

Closing Grain Market Comments 5-30-2013 - GMO wheat ???

Markets closed mixed to weaker today despite the very weak US dollar.

Old crop corn closed down 11 cents, new crop corn was down 3 cents, KC wheat was down 2, MPLS wheat was unchanged, CBOT wheat was off 4 cents, July soybeans down 6, November soybeans up a penny a bushel, the stock market bounced a little with the DOW up 22 points, crude up 50 cents a barrel, gold was up 21 bucks an ounce, and the US dollar got hammered down 670 on the June US Dollar Futures at 83.035.

Good news is that most of our markets closed well of the lows; the bad news was we couldn’t continue the recent strength despite gold strengths and the US dollar’s weakness.  Wheat did close about a dime off of its lows in most of the contracts and that wasn’t a bad close especially with the negative headline or press going on with the GMO wheat found in Oregon. 

As I mentioned this a.m. I don’t think the GMO wheat deal changes anything; but it did cause Japan to cancel a white winter wheat tender and some of the articles I read indicated China might be a little scared or cautious.   The bottom line is with our exports already struggling we don’t need more issues that cause our demand to be softer.  Having said that my sources tell me that happened was a farmer in Oregon found a couple volunteer wheat plants in a field and had them checked out.  So I don’t think we have a major quantity to worry about; but I guess only time will tell.  Bottom line is today’s price action wasn’t super bad given the weak opening we had via this news. 

On the wheat side of things I also noticed that plenty of areas down south look to be getting hammered with some moisture.  This opens a couple questions; first off is double crop soybeans.  Next and for wheat is quality concerns.  As for harvest updates I haven’t seen much; (heard of 6 rail cars total with pro any place between 10-13…..but moisture of 14 or higher) I did hear of a couple loads of higher pro coming off in Oklahoma but I haven’t heard many major updates or yields.  Weather looks to be slowing things down and things have really just started or are trying to get started.

The other thing on wheat and moisture is we could see some basis appreciation on the good quality wheat.  I think this is a little early but something to watch. 

6-10 day maps have below normal temps in our area and other parts of the Western Corn belt.  While the heart of the corn belt – Iowa/Illinois as well as the far Eastern part of the HRW belt as SRW areas have above normal precip.  Our area looks to have average moisture in the most recent 6-10 day forecast as does North Dakota.

So it looks like we could be open for time for sunflower planting and it also looks like ND could be open to finish up spring wheat.  Many areas plant until June 15th from what I am told.  A lack of heat units might be a concern.

Overall from what I hear weather is bullish just because of the fact that we don’t have everything planted for corn/spring wheat and it looks like we will fall further behind on soybeans plus we could lose some double crop soybean acres.

Fundamentally I have seen some updated corn balance sheet numbers from a couple different firms.  Most indicate acres down 3-4 million or so; with yield down to the 150-155 area; but carryout numbers still seem to be big with most ranging from 1.5 billion bushels to 2.00; with most at 1.7 billion or so.  As for my thoughts on yield I still think we have the potential to see corn yields as low as 130 or as high as 180 and mother nature will decide how they end up. 

As for my thoughts on the USDA report in early June; I think we will struggle to see a carryout anything under 1.9 billion; I look for the USDA to leave things fairly close to unchanged and I think the risk is that they leave the yields unchanged and production unchanged but because of our bounce on the board they lower expected new crop demand.  Why would they leave the yields unchanged; first off remember last year and previous years?  They don’t have a big history of major adjustments in this report; secondly they already dropped our yield via the slow planting as noted in their May Supply and Demand report.  Plus despite the re-plant acres, agronomic unknowns, the fact is that on May 20th we had 71% of the corn planted; not far off of average and this week we had 86% planted also not far off of average.  Now I am not saying I will agree with the USDA logic; I just think the likely hood of them lowering production in this coming report is slim.  And if they do lower the production I think they lower demand similar and leave carryout unchanged.  Keep in mind they are already forecasting a 1.9 billion bushel demand increase over this  year.  So they seem to be using the logic of more supply equals more demand and thus less supply equals less demand.

I did see a rumor that China canceled some Brazilian soybean purchases.  Now does that mean they come back to the US?  Probably not as they cancelled some of ours just a few days ago.  Perhaps they are simply looking at the discount new crop is.  As end users of products when you have an inverse you don’t want to have a single extra product or bushel on hand.

Look at it this way if beans are worth 14 dollars today; but 12 dollars next week; how many of those $14.00 beans would you want to have if you thought your competitors would be able to sell beans just a hair over 12.00 in a few days.  Not many.  Bottom line with inverses guys don’t want to have any extra ownership; but the lack of ownership can also cause huge price explosions at the end. 

A good example of that is the fact that I know of a couple different ethanol plants that use a fair amount each month; buyers have told me they have about 0 ownership.  Yet that will be the slot when things are maybe as tight as they have every been historically.  Could we see some old crop basis fireworks?  Without a doubt.

Another way to look at the inverted markets; such as we have between old crop and new crop is the present millet old crop new crop spread.  If old crop millet is 50 bucks or so how many buyers want to have any old crop left when new crop is coming in that they can buy for 16 bucks?  Not much.  If you were a merchandiser or buyer for a company and had all your bins full with the high priced 50 buck old crop millet and then new crop came and went and your competitors where buying 16 bucks.  Do you think you would still have a job?

Bottom line is we have several markets that have some big inverses in them presently.  Some are cash prices inverses like millet, others have basis inverses as well as inverses in the board such as soybeans, corn, spring wheat, and milo; and others such as winter wheat just have a basis inverse.  These inverses and market structures should add to our price volatility.  We should see cat and mouse games; where the last guy selling something someone needs to get by to new crop gets paid in gold; but the next guy gives it away.

It might be easier to figure the inverses and marketing out if they would tell us exactly how much demand there will be and the exact date new crop will be ready.  But those are changing all the time.  We don’t know if ethanol production in a couple months will be much stronger, much weaker, or the same as it is now.

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