Markets closed mixed to stronger today.
Old crop corn was up 5 cents, December corn was up 12 cents,
KC wheat was up 6 cents, MPLS wheat was down a penny, CBOT wheat was up 7
cents, July soybeans closed down 2, November soybean closed up 4 cents, the DOW
was up 138 points, the US dollar about unchanged at 80.66 on the cash US Dollar
index, crude was up nearly a buck a barrel, and gold was off about 17 bucks an
ounce.
Mixed type price action today; actually volatile type price
action. We seen several 5-10 cent moves
in July corn in a matter of minutes. We
did have July corn fill the gap left on the charts from the March 28th
USDA report; but didn’t manage to close above it. Technically we are at some big resistance
points; in my opinion it might be tough to break the resistance before we get
into delivery or at the least before July options expire on Friday. Keep in mind that the option sellers will try
to pin the price into levels to get the most options to expire worthless as
possible.
The winter wheat price action today also looked to be
technical in nature; a bounce off of the lows set yesterday; which were the
lowest level seen in about a year. We
left reversal type action on some of the charts yesterday and both corn and KC wheat
did a good job following that up. MPLS
wheat which has held the 8.00 support level on the July contract for well over
a month finally gave threw. With the
funds long there that could add to some selling. The positive for spring wheat has to be the
lack of producer movement; basis is on the firm side so that might help keep
MPLS from really tanking. I do remember last
year about this time…..maybe a few weeks earlier………MPLS had held support for a
long time; but it eventually broke it and then lost about 75 cents in just a
few days.
I did hear some comments today about a possible heat dome
forming. But some in the industry think
that would be perfect for some areas. I
am hoping our area just gets the warm and wet forecast. Bottom line is the weather forecasts are really
dependent on what actually got planted which might not be answered for several
months. The forecasts will continue to
be a thin line and depend on what view the funds are taking on it. The actual answers to production won’t be
known soon nor will the crop be made or broke via one forecast.
For prices we will have to consider the demand side as well;
the old crop demand story for soybeans was brought back to life yesterday with
the NOPA crush numbers. While the old
crop corn demand story has been great for ethanol. I still think we have some possible fireworks
for both of those commodities but I also don’t want to wait for the top with
the huge inverses that those markets have.
Our local corn inverse for old crop corn versus new crop is
1.80 a bushel; that means it is 60 cents a month storage cost if everything is
unchanged. One cannot afford to pay
that. If a grain merchandiser left that
inverse on the table they would lose their job.
That doesn’t mean old crop corn needs to be sold today; it just means
that one has to have a good exit plan for old crop basis and realize that
fireworks one is playing with. If you
have questions on the old crop basis and implications give me a call. Also give us a call if you want to have some
offers out there; as we are very close to the time.
The sunflower interest seems to have died down a little bit
the last day or two. The birdseed
business in particular seems to have had orders slow up a little bit.
Wheat basis seems to be firm; I had some spring wheat cars
on the spot floor today that seemed to trade ok to good and winter wheat basis
has been strong. A lack of movement and
lack of harvest pressure. I think many
might want to look at locking in winter wheat basis if you plan on pricing the
board in the next several months. My
reasoning behind that is the fact that winter wheat is just too expensive
versus spring wheat. Plus as it sits
right now spring wheat in ND looks to be less stressed and thus potentially
lower in protein.
We have already established that we won’t export much winter
wheat; plus we are seeing more quality issues in the little that has been
harvested. If a mill can buy 13 pro
spring wheat or for that matter 15 pro spring wheat cheaper then winter wheat
why would they use the winter wheat? There were some spot winter wheat cars
yesterday that traded the equivalent of 10 to 60 cents more then what 13 to 15
pro spring wheat is bid for September/October.
That to me sounds like a big enough spread to look at trying to switch
grinds to. Would you rather use 12 pro
winter wheat and have to pay 60 cents more than 13 pro spring wheat?
The bottom line reason for looking to long in winter wheat basis
on old crop bushels is the demand story.
We don’t have a demand story; we have a supply story that eventually
will be solved via replacements. Replacement
of spring wheat instead of winter wheat; replacement of other countries
exporting such as Russia instead of us.
If you want more info on looking to lock in winter wheat
basis give me a call; as in my opinion it is a good move and probably a right
move for wheat that you want to price in the next 1-5 months or so; but maybe
not the move for something you are looking to price or hold on to into next
year.
I am really not seeing a lot of other news out there
today. We will have ethanol numbers out
tomorrow and export numbers on Thursday.
July options expire on Friday and next week will bring the updated acre
and stocks numbers on Friday.
We should be a weather and chart market; but once the story
turns to demand which shouldn’t happen until we have a better idea of
production. We need to realize that the
job of demand should production be any place close to where it is presently
forecasted will be to find additional demand year over year. That means that the job of the market will be
to create demand. Yes some demand will
be created just via having more supply; but the normal way to create demand is
via lower prices.
They say that big bull markets always turn into big bear
markets. The reason behind this logic is
usually bull markets take our price up high enough to create more supply (more
acres in our case in both the US and the world) and high prices curb demand
(guys go without or find replacement).
So once the demand is curbed and supply is increase we historically go
from bull market to bear market. Just a
natural ECON 101 reaction; doesn’t mean it has to play out this year as guys
have been talking about it for some time.
But eventually that’s how its suppose to play out; it’s just a matter of
mother nature deciding when and if that’s our outcome.
But it does tell us for grain marketing purposes to have a
plan of action. So we are not sitting
over bulled up on prices should we get the bear market reaction that some have
predicted.
Please give us a call if there is anything we can do for
you.
Thanks
Jeremey Frost
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