Tuesday, May 21, 2013

Opening Grain Market Comments - Crop Progress update

Markets are called weaker this a.m. from an overnight session that was weaker and crop progress that showed corn planting almost back to an average pace.

In the overnight session old crop corn was down 13 cents, new crop corn was down 8 cents, KC wheat was off 9 cents, MPLS wheat was down 8 cents, CBOT wheat was off 10 cents a bushel, old crop soybeans down 2, and new crop soybeans were down 8 cents a bushel.  At 8:10 outside markets have a rebound going in the US dollar up 320 on the cash index at 84.056, gold prices are down 15 bucks an ounce, crude is down 35 cents a barrel, and equity futures are pointing to slightly firmer opening with the DOW up about 20 points.

The thing that stuck out to me the most this a.m. wasn’t the hard down for the corn market; but the fact that it was old crop leading us down.  At one time old crop corn was only down 2 cents; but it ended the night down 13; while new crop corn while new crop corn opened down about 7 cents and only managed to end the overnight session a penny weaker.  New crop corn only had about a 4 cent trading range in the overnight session. 

The reason for the pressure in case you haven’t heard was the fact that US corn planting was a record pace last week; at 43%; which based on March planting intentions is about 41.8 million acres of corn planted.  This was very close to the estimates; but a little on the high side and something negative for the bulls.  I think that is why we seen most of the pressure in the old crop.  Bearish info and the fund ownership seems to be in the old crop contract even though the news was really new crop news.

As mentioned yesterday with nearly half of the crop planted at once pollination could be a major issue.  Doesn’t mean it will be negative; but a lot will be riding on the market at one time; as pollination might not be as spread out as normal.  The other thing one has to ask is how many of the 41.8 million acres planted last week were planted via “mudding it in”?  How much yield loss do we potentially have with 72% of the crop planted after May 12th?  What about the other 28 million acres still not planted?  Will they be?  Some of the forecasts are wet and the market isn’t giving producers an incentive to keep planting via prices going higher.

Bottom line is things look bearish today; but there are a couple small positives; or at least some unknowns out there that don’t have to shake out to lower prices.  They could and I think lower prices is our risk just based on the fact that as it stands today the market is probably trading a 13.5 to 14.0 billion bushel corn crop with a nearly 2 billion bushel corn carryout.  But is that old news and priced into the market like technical trading would say or is it yet to be priced in and a reason to be making some sales like many of the advisors are saying? 

Other then the crop progress we don’t have a lot of new news out there.  We have weather but now more see moisture as beneficial.  Now it is in some areas; but other areas it could lead to flooding in low spots which in turn might mean stuff needs to be re-planted and it looks to lead to some prevent planting or shift of acres.  The market hasn’t cared for some time and likely won’t; as we don’t have the demand for the crop potential as it stands today.   If we end up with a 13-14 billion bushel crop that means we need to find 2-3 billion bushels of demand for our carryout to stay the same as it is this year for corn.  This year we are scheduled or projected to use about 11 billion bushels; so the job of the market should we raise more corn is to find more demand.  That won’t happen just because we turn on a light switch; some might happen because it is available a little easier; but the way to find more demand is lower prices and even lower prices don’t guarantee that we get the demand.  Our competing nations like Brazil as example will be wanting to sell their corn.  Who’s to say that they don’t undercut our price should they raise a big crop?

Speaking of other countries who have had a history of under cutting our price; the Russia Grain Union raised total grain production to 90-100 MMT. 

We can talk and argue about the grain fundamentals and how demand will or won’t bounce back based on production.  But at the end of the day I am a firm believer that the fundamental that matters the most on a day to day basis is money flow.  I think longer term supply and demand is very important; but day to day; whether we go up or down it seems to come back to money flow and what “big money” or the funds want to do.  We need to give them a story; a reason to put some money in the grain market versus the stock market.  It doesn’t have to be a big story to start; but some sort of headline and then let the funds over do the move like they always have.  We don’t want them to get on the bear bandwagon.

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


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