Monday, May 6, 2013

Closing Market Comments - only 12% corn planted - grain prices down hard!

Markets closed down hard today behind weather forecasts that appear to have a planting window open for much of the corn belt.

Nearby corn was off 25 cents a bushel, December corn was down 15 cents, KC wheat was off 21 cents, MPLS wheat was down 13 cent, July beans were off 18 cents, November soybeans were down 14 cents, CBOT wheat was off 18, equity markets had the DOW close of 5 points, crude up 20 cents, gold was up 5 bucks, and the US dollar up a couple hundred at 82.375 on the June contract.

Just a horrible day for the grains; one that started with a gap down when the markets opened up Sunday night.  The selling seem to accelerate once we seen the poor export shipments that were out at 10.  Hard to find much positive as most of the markets closed near the lows of the day; December corn did manage to close 6 cents off of its lows; but nothing impressive.  Hopefully over done; but I guess only time will really tell on that.

This afternoon we did have a crop progress report that came in a little on the light side and perhaps that will give a little support to the market; but it really feels like weather forecast updates will be more important then what we did or didn’t get done last week.  Should they be?  I guess that is debatable; as it is early May and we are very far behind planting in the corn belt.  Some areas are needing the deferred forecasts to be dry or they might end up going to something else or even some prevent planning.  But today that wasn’t the focus; nor was the focus on the yield potential that can be lost with late planted corn.  The focus today was that we will get in the field and that the American Farmer will get things done.

As mentioned this afternoons crop progress should be considered friendly and it might make forecasts that much more important.  Corn planting came in at 12%; which was on the low end of most of the estimates I had seen.  I had seen a range of 10-20%; with most in the 12-15%.  But I don’t know that it is enough by itself to take us higher.  It could and in my opinion should slow down the bleeding and make forecasts that much more important; but it isn’t a game changer.

Last year planting was a 69% and the 5 year average was 47%; so coming in at only 12% really tells us this crop is behind and that there is a potential train wreck but that wreck won’t happen until the future and right now the future forecasts look to be open.

Soybean planting came in at 2% and spring wheat planting came in at 23% which is about ½ of the average and well behind last year’s 82%.  Winter wheat conditions also seen another point drop in the Good/Excellent slot. 

The winter wheat condition and soybean/spring wheat planting are not really a surprise and likely not a market mover either.

I did see a comment this afternoon that ideas are planting progress will be 35-40% by next week Monday and they also commented that the potential is still there to have 75% of the corn planted by May 20th.  I don’t think that I agree with that; but it doesn’t matter what I think nor what others that might agree with me think.  It is trade and “big money” opinions that matter as they are what move our markets. 

On Friday we will have USDA report out; as mentioned in comments this a.m. small changes are expected on the old crop balance sheets.  While the trade is looking for a year over year decrease for wheat carryout; while they are looking for both the corn and soybean carryout numbers to nearly double.  They are expecting major increases in the world carryout numbers for all three of the major grains.

The question that we really need to know as we go forward is what has this market already priced in?  What will it take to get a rally?  Perhaps we need to consider the fact that some late planting and loss of corn acres might be needed to hold present price levels?

I don’t know the answer to those questions; but I do know that the nearly 2 billion bushel carryout was a possibility about a year ago before the drought hit and we managed to hold the 5.00 level on Dec futures.  I do know that we have talked about a 2 billion bushel carryout for the 2013/14 year for some time now and we have still held the 5.00 Dec corn futures level.  But I don’t know that we can still hold it if that is how things actually shake out.  I don’t know if money flow will start coming in to our markets if we get too cheap or if money flow might decide to get short our markets and try to find panic selling. 

For us to get a rally we need to get the funds interesting in commodities again; they haven’t had the best experience the past couple years.  But if we want to have bull markets we need to have money flowing in; we need “Big Money” on our side; that means we probably need a headline.  Can too much rain and moisture be that headline?  Maybe for a short time; but I don’t know that many are going to bet that the farmer who as advanced 10 fold in technology over the past few years won’t be able to get the crop planted.  We need to realize that we might not rally until after the fact; when the market realizes that we didn’t in fact get it all in?  So what else could help us rally?  Perhaps dry and hot weather sometime this summer can help?

But what do we really need for a rally to last?  Demand; we need to find more demand.  Be it demand that we gain from others misfortunes, (perhaps like some countries gained from our misfortunes last year)demand that comes from policy change, demand that comes from better economics of the end users, or demand that comes from some other black swan event.  This year if we do happen to get all of the corn in the ground and we end up with anything close to trend line yield.  We will need to find more demand year over year than ever in history.  That shouldn’t be easy and that is one reason why the pro’s, funds, spec’s, and even producers should be considering sell some of the bounces when we have them.

What is hard is the fact that the market doesn’t exactly tell you what it is going to do. 

I seen one well know advisors that had clients pull their short hedges last week Monday; which was the limit up day.  Now depending on when you got his advice you potentially lifted your short hedges in the 5.40-5.70 range; I don’t know exactly when he put his advice out nor know how quick guys could have followed it.  I did notice today that via a stop he has an order in to re-hedge December corn at 5.32 if I remember correctly. 

So two things; that means that potentially he is taking as much as a 38 cent hickey off of his sales.  That should for one show guys that this marketing thing isn’t easy.  Secondly it shows that perhaps using the right tool is important.  Third it seems to be re-active; not pro-active.  Last it shows how quickly things have changed in just a few days.

It doesn’t tell us how quickly things could change again the other way in a few more days should mother nature not cooperate with everyone.  Heck myself personally I am praying for some rain in our area; we could use it.

Bottom line whether you are now wishing you would have sold some last week or are contempt waiting out the storm; have a plan in place that makes you comfortable.  Don’t be super re-active but rather pro-active.  If you want some help with a marketing plan please feel free to give us a call.

As we go forward watch weather forecasts, demand news (haven’t heard a lot about it lately but the bird flu in China hasn’t helped out the bean demand and has some traders on edge), and money flow.

As for locally I keep hearing more talk of winter wheat acres not going to make it.  If you have had your wheat zeroed out and have a contract with us for new crop; please give us a call sooner than later and we can give you options.  I do worry a little bit about local basis because it doesn’t look like we will have much; but we also need to get some demand and that we really don’t have.

The bird food market remains slow.  Orders are very good but otherwise things are slow.  Some are thinking that acres are increasing via the failed winter wheat and the delayed planting.  I don’t know that it is a material change in my opinion; at least not yet.  It seems like most guys in our area are looking to go in with spring wheat into the failed winter wheat because of rotation.

here is link to CHS Hedging Crop Progress Update

1 comment: