Monday, May 13, 2013

Closing Market Comments- USDA Crop Progress - Supply and Demand Report - CFTC Recap

Markets closed firmer across the board today lead by the expiring May contracts, which go off the board tomorrow as spreads traded very firm leading us higher.

May corn was up 30 cents, July corn was up 19 cents, December corn was up 10 cents, KC wheat was up 8, MPLS wheat was up 4, CBOT wheat was up 5, May soybeans closed up 33 cents, July beans up 20 cents, November soybeans up 4 cents, equities had the DOW off 27 points, the US dollar near unchanged, crude off about a buck, and gold was off about 8 bucks an ounce.

Nice day for the grains as old crop corn and old crop soybeans gained all that they lost on Friday and then some.  Wheat however only gained a portion of what it lost on Friday; as did the new crop row crops.

The strength looks like someone wants some old crop; basis is strong and the May futures go off the board tomorrow at noon. 

This a.m. we had export shipments out and they were strong for wheat, poor for soybeans, and ok for corn.  Wheat was above what we need on a per week basis, corn was double last week but still below what need on per week basis, and beans were half of what they were last week and below what we need on a per week basis.

New crop corn and beans followed; as did wheat, but the charts didn’t do anything impressive today.  The 6-10 day forecasts and 8-14 day forecasts were wet this a.m. and last night; but the ones I seen this afternoon are a little dryer.  Not sure if that will be enough to pressure or markets or not. 

This afternoon we had an updated crop progress report.  Corn planting came in at 28% planted; below estimates and well below average.  But I don’t know if it is bullish enough for prices to run up.  Now if the forecasts turn wetter or the system coming later this week gives us more moisture then expected we could see things run up.  The thing to keep in mind is these forecasts are not new news; the fact that we are well behind average isn’t new news; and yet prices are about the same as they were a month and a half ago.  So despite all of the issues with a late slow planted crop we haven’t managed to add much premium.  Is that weather premium still to come?  Or could things be a lot uglier if we had everything going smoothly?

I know plenty of producers are bulled up because of the potential acres getting lost or switched as well as the potential yield reduction from the late planted crop.  But has the market really acted like it cares?  Hopefully it just means the market is slow re-acting like they were to last year’s drought? But for risk management purposes and marketing purposes we need to realize that if the market can’t show strength despite bullish news perhaps the news isn’t that important.  Or at the very least realize that if we were waiting for the weather rally scare that started because of our slow planting; that news is here and now.  It can get worse and we could fall further behind and potentially lose acres and more yield potential; but it is becoming old news.  The market isn’t focusing on that and if it doesn’t soon perhaps it won’t.  Perhaps this is all the higher this news alone can take us? 

Overall I think I would like to give it a little more time to develop; but the market really needs to start reacting sooner than later.  Or the “big money” will start looking for another story. 

The question we might have to start asking our self is what will the market do if we get the balance of the crop planted over the next 2-4 weeks.  With today’s planting pace of 28% what do we need to have happen to see a bullish reaction in the next week?  How low does that number need to be by memorial day to be considered bullish?  I don’t really know the answers to those questions; but I am a little disappointed that we haven’t rallied more then we have.  

Look at it this way on April 14th planting was a 2%.  That report came out on April 15th at 3:00; on the 16th the next trading day after that report we closed December corn at 5.40.  Planting as of yesterday was 28% completed for corn versus 65% on average.  The price today closed at 5.39 on December corn.  26% planted in a month and we lose a penny?  What will it take over the next week to have a strong up move? 

Maybe the grain markets have just lost the interest from the funds?  What will it take to get them back interested?

Spring wheat planting did make a good job up to 43% planted; so still behind but catching up a little.  South Dakota is at 76% planted; up 30% on the week. 

Winter wheat conditions came in unchanged on the week; still a horrible looking crop.  But still not enough reason for the funds to get interested and if the USDA world numbers are correct it might be some time before the funds decide to get on the wheat bandwagon.  One thing that is and should be a little positive wheat is the fact that it seems like the USDA typically starts off aggressive on production.  We know they have done that for the US corn crop the past couple of years; but they also tend to do that in other places; such as our competitors.  The problem is they also tend to overstate demand.

Weather does seem to have some small issues in other areas growing wheat and that is one thing we will have to keep our eye on.  The world wheat production was pegged at 701 MMT for this coming year; which would be well above the 655 MMT raised this year.  Yet the carryout number is fairly flat year over year at 186 for next year versus this present years 182 MMT. 

Below are a couple links from CHS Hedging.  The first is crop progress update.

This next is CFTC Commitment of Traders data.

The last one is the video recap of the USDA report from Friday.

As we go forward we should remain in a weather market; but once we get this crop planted rain won’t be what will run us up.  If we do manage to get things in the ground the job of the market will be trying to find demand and the easiest way to find demand is via lower prices.  The USDA forecast on Friday was for lower prices for next year; the average farm price for new crop corn 4.30 to 5.10; if that is an average price that means that in their forecast they are saying we will spend some time below the 4.30; which in our area means under 4.00 cash prices.  The average price for soybeans 9.50 to 11.50; which means a forecast below 9.50 at some time.  How low below the low end of the average does the USDA think we will get?  Don’t know.  Does it matter what they think our low price will be.  No; it doesn’t.  But what we need to take from it is the fact that how do they think our demand will improve year over year?  Based on what they have for average farm price; I think they expect that demand increases via lower prices.  If we told the USDA our prices will be at present levels; where does that put your demand projections at?  I would guess the answer would be sharply lower demand?

Bottom line is make sure you get yourself comfortable in your marketing plan.  If you are not comfortable now perhaps have a pro-active plan that gets you comfortable.  And if you are betting on the horse that rain and moisture will keep things from getting planted realize that horse hasn’t been very attractive to the funds so far.

Other news out there will include the NOPA crush numbers out Wednesday this week.  Have we curbed any soybean demand?

The birdseed market has been impressive with orders; but actually buying interest remains very hit and miss.

Spring wheat spot floor basis also remains very defensive.

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

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