Closing Grain Market Comments 6-11-2013 - USDA report preview

Markets closed firmer today ahead of the USDA report which will be out at 11 central time tomorrow Wednesday June 12^th.  Spreads firming a little bit today was of note; main reason seemed to be lack of producer movement along with decent demand for the old crop.  We did see July soybean meal have a contract high close; while July soybeans had the highest close this year.  Bottom line is old crop soybean and soybean meal charts look fairly decent and we haven’t exactly solved the protein issue for old crop beans despite the South America crop now basically all in the bin.

When things  closed out today July soybeans ended up 29 cents a bushel, November soybeans were up 8 cents a bushel, July corn was up 10, December corn was higher by a nickel, KC wheat was 4 higher, MPLS July was 4 higher, MPLS September was up 1 ½ a bushel, the US dollar June Futures are off 580 points at 81.07, gold closed down about 9.20 cents an ounce, crude off 85 cents a barrel, and the stock market was down 116 points on the DOW futures.

Not a ton of news out; more of a wait and see what the USDA report will tell us.

Old crop strength could have been some unwinding of spread put on recently because of the weather scare for new crop or it might have just been more range bound technical trade in July corn along with the fact that it is simply hard to buy tons of grain from the producer right now.  Guys are either busy in the fields or look out the window and can’t get to the fields.  Either way the producer isn’t very interested and buyers still need product; so thus we see the spreads firm up a little.  The old crop corn and bean balance sheets are more than tight so fireworks any given day on the July contracts shouldn’t be a major surprise. 

As producers and hedgers we need to have some caution with the old crop tightness; because of the huge inverses we have out there.  The cash inverse we have posted locally is 1.66 a bushel on corn; meaning our nearby bid is 1.66 more than our new crop bid.  As hedgers and producers we don’t want to give that inverse a way.  If everything is unchanged it is like paying 50 cents a month in storage charges.  I don’t know anyone that would go for that if they brought the grain into an elevator.

Bottom line is that sometime in the next few months a guy should have old crop corn and soybeans sold; if you want to own you do it via paper or a basis contract against a deferred month.  Now that doesn’t mean today; because as tight as things are we could still see some huge fireworks on old crop basis.  In my opinion it will be a market that heats up sometime and then a few days later has a crash for the ages.  So the last couple of guys will potentially get rewarded big time via a great basis level; but the guy that is late just by an hour, day, or week could end up just at new crop values.  Very thin line and costly game. …………This will be just another example of risk-reward in grain marketing.

Heading into the report tomorrow my bias is we see a neutral to bearish report for new crop.  While old crop is neutral to bullish; but that doesn’t mean I look for old crop to gain tons on new crop.  I think the funds own a little too much old crop for it to play out that way; I think spreads could weaken even if we get a neutral old crop report and a bearish new crop report.

Here is latest estimates; via the Van Trump Report.

US Ending Stocks 2012/13
	June #	May USDA #	Avg Guess	Range of Guesses
Corn	???	0.759	0.759	0.684 - 0.919
Soybeans	???	0.125	0.121	0.080 - 0.140
Wheat	???	0.731	0.733	0.715 - 0.751
US Ending Stocks 2013/14
	June #	May USDA #	Avg Guess	Range of Guesses
Corn	???	2.004	1.795	1.175 - 2.200
Soybeans	???	0.265	0.268	0.185 - 0.344
Wheat	???	0.670	0.640	0.501 - 0.713
Global Ending Stocks 2012/13
	June #	May USDA #	Avg Guess	Range of Guesses
Corn	???	125.430	125.975	124.500 - 128.200
Soybeans	???	62.460	62.105	60.500 - 63.000
Wheat	???	180.170	180.395	179.800 - 181.395

Global Ending Stocks 2013/14
	June #	May USDA #	Avg Guess	Range of Guesses
Corn	???	154.630	149.571	141.510 - 155.200
Soybeans	???	74.960	73.512	68.200 - 76.000
Wheat	???	186.380	185.144	179.800 - 188.500
US Wheat Production
	June #	May USDA #	Avg Guess	Range of Guesses
All Wheat	???	2.057	2.034	1.872 - 2.109
All Winter	???	1.486	1.467	1.401 - 1.523
Hard Red Winter	???	0.768	0.752	0.676 - 0.815
Soft Red Winter	???	0.501	0.505	0.492 - 0.517
White Winter	???	0.217	0.210	0.200 - 0.217

My bias is that the USDA either doesn’t acknowledge the supply concerns that the market things or that if they do acknowledge them they equally offset the projected demand.  My reasoning is that the demand increase the USDA had in the last month came with lower average farm prices.  Without lower prices I don’t think they can jump the gun that demand increases just like turning on a light switch.  I think the market will have a job to do to increase demand.

Now my bias is also for the price action to only trade the report for a few minutes.  I think that most in the market realize that the USDA can be slow to the game and they don’t always update the production numbers that often this early in the season.  I don’t think that the market takes tons of risk premium out of the market should the USDA give us a negative report.  They probably wait for more confirmation from the stocks and acre report and see how weather develops over the next few weeks.  Will we get all of the soybeans in?  Will the corn conditions improve or decline as we go forward? 

Can we see warm and wet in the next few weeks/months?  If so could the crop get bigger?  If we decide to get hot while pollination hits how much yield loss potential is out there?  ETC………..lots of unknown factors and unknown agronomic factors that should keep some support in our market until we have more cards dealt.  As more cards get deal and we go forward we need to realize that IF the USDA numbers of 1.5 to 2.0 billion bushel corn carryout are true; the job of the market won’t be to slow demand; the job of the market will be to increase demand.  The fastest and easiest way to increase demand is via lower prices. 

Bottom line heading into the report tomorrow be comfortable.  It doesn’t matter if my opinion or bias is one looking for a quiet report.  Be comfortable in your marketing and your position heading into the report.  We never really know when we could see another report similar to the March report that took over a buck out in just a few days.

Other news out there include ethanol numbers; which will be out tomorrow morning.  Friday we will have crush numbers out and Thursday we will have export sales out.  We need to watch the trend on these; not just the numbers.  Is the trend we are creating or losing more demand?

Still seems to be some major concern for North Dakota acres; lots of talk of prevent plant.  Sunflower buyers are looking and the market continues to wonder how many spring wheat acres will be lost.

I do have to question the spring wheat demand versus the supply; because there seems to tons of old crop spring wheat in the bins.  Plus we seen the MPLS spot floor roll its bids today to the September futures.  When a market rolls the bids early in an inverted market it isn’t always the best demand sign as they are trying to take that inverse away from the market.  If demand was super good then the buyers would be bidding against each other and things wouldn’t roll early.

At the end of the day wheat has a couple major stories in the US; the horrible HRW crop that many have and the lost ND spring wheat acres.  But those are supply issues; not demand issues.  The HRW crop issues are old news too; what the wheat market really needs is some good demand news.

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

Thanks