Tuesday, June 18, 2013

Closing Grain Market Comments 6-18-2013

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.


Jeremey Frost

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