Thursday, June 20, 2013

Closing Grain Market Comments 6-20-2013 - How will things shake out over the next couple of weeks?

Markets closed mixed to weaker today in choppy market.  The main highlight was the very ugly outside markets; but we also seen the wheat market chop around and trade positive for a little bit of the session.

When things closed July corn was down 9 cents, December corn was down 10 cents a bushel, KC wheat was down 3, MPLS wheat was down 1, CBOT wheat was down 7 cents, July soybeans failed to close above 15.00 for the first time this month down 26 cents, November soybeans were also down 26 cents, the DOW closed down 354 points which was about 100 more weaker then it was when the grain markets closed, the US dollar was firm up 350 points on the cash index at 81.77, Gold was down 90 bucks an ounce, and crude was down about 3 bucks a barrel.

Gold down 90 bucks an ounce is about $9,000 a contract; that would be nearly 2 bucks a bushel in the grain markets should a regular contract lose 9 grand.  One does have to wonder with the ugly outside margin calls that some will have if this has more spillover effect on selling or squaring up.   Where would the selling take place ……..probably soybeans and corn as that is where most of the length is at.  Maybe a little MPLS wheat as funds are long that as well; but the funds are short KC and massively short CBOT wheat so perhaps margin calls help lead to more short covering in the wheat markets????

The weather card was also mentioned today as a bearish item.  But to me I didn’t see much in the forecast that had changed from yesterday.  As I have mentioned before weather just seems to be volatile right now; some areas need some heat for development; while other areas could use heat and moisture. 

We did have export sales out this a.m.; but nothing major to report there.  Good to ok for wheat, good for new crop soybean meal, ok for old crop corn, bad for new crop corn, and poor for both old and new crop soybeans.  Nothing major reverses the expectations and nothing that changes the current fundamental trend.  That trend being we need to find more demand.

Outside market pressure started via the Fed yesterday; but really turned into herd selling.  Much like yesterday the grain market seemed to see just heard buying.  There was some talk about some interest rates in China being increased at the Bank of China; from what I read the short term rates (one week lending rates) increased from 7 to 11% in the last day.  The PMI number in China also came back disappointing; leading to questions on the overall strength of the world economies and question market if a setback is on the horizon.

Morgan Stanley is cutting jobs in its commodity business; because of a lack of profits.  Helps show that the industry we are in isn’t exactly easy.  Makes one wonder if at some point the funds will give up playing this game???  Historically to me it seems like the funds really get in late to the game; typically we have made our tops when they are the longest and we make our bottoms when they are the shortest. 

Not much else out there today; we do have option expiration tomorrow.  I would think our July contracts get very volatile over the next few weeks; basis is just too tight in some areas. 

The big thing the market is waiting for is next week’s USDA updated stock and acre report.  Market will be looking for bullish stock numbers and a mixed bag on the acre side.  Most think that we have decreased acres via the weather because of too much moisture in many areas.  Mainly Iowa and North Dakota; but most also think that because the USDA report is a survey in early June that the USDA will end up with a re-survey.  So how accurate will next week’s numbers be?  Will they be overstated because producers had intentions to plant but moisture didn’t allow?  Or will they be understated because it is a survey and the outlook of getting planted was rather bleak a few weeks ago??  Bottom line is it will be hard to determine how the market will take the numbers and it is also going to be hard to outguess what logic the USDA will use when they print the numbers.  How many little asterisk markets will be on the report??

The other question on next week’s report will be the stock number.  Will the USDA find 200-500 million bushels again of old crop corn?  Is there enough corn out there to get us to new crop?  Things could get very interesting over the next couple of weeks.  So for marketing make sure you are comfortable.

In my honest opinion old crop corn has the potential over well over a dollar gain; but also has to have at least that much risk and I am talking simply price today versus where the price might be in 30 days.  I could paint a picture where we are a buck higher; but I could also paint a picture where we are a buck lower.  The price action will primarily hinge on the USDA report; but weather, how the outside markets react (tough to paint a good picture if the DOW continues to lose 500 plus points every couple of days), and how the ethanol situation shakes out.  I really believe we have at least a 2.00 potential range depending on the above factors as well as other unknown black swan events.  I think basis might be as volatile or maybe even more; no real resolve to the ethanol situation as of yet along with a possible late harvest should keep old crop corn basis volatile.  I know in trying to sell corn that the bid ask spread has become wider then wide; and the futures spreads are what is making it super volatile. 

I don’t think new crop corn will be as volatile as the old crop; but we have some major risks there as well.  The risks and how it shakes out will be determined mainly by weather; but how many acres we get along with the USDA report next week will help determine the fundamental direction.  How quick can demand bounce should we have a big crop?  I think the possibility bottom falling out of new crop corn should be low until we get some of the unknowns answered.  First unknown to be answered potentially will be next week.  As we do a better job of defining our production and that production number happens to continue to be big we open the door to the bottom falling out or major downside price risk. 

Bottom line is over the next several weeks we will have more questions answered.  How the USDA and Mother Nature decide to answer those questions will really dictate our grain price action as we go forward.  With all of the unknowns we can create multiple price action pictures.  So in a grain marketing plan we want to be pro-active enough to be comfortable no matter what outcome ends up happening.  We want to lean that plan towards our own personal bias for things like production, weather, and tie it into our goals and risk tolerance.  But we don’t want to get so stuck on thinking that the outcome has to shake out exactly how we think it could or should.  We need to realize the other side of the coin and risks and rewards that associate with that possible outcome.  Bottom line is in our industry we need to try to make good risk management business decisions and take some of the emotion out of the marketing plan. 

About the only other thing I see out there today is the cash market movements.  The birdseed market felt slow today; crush sunflowers down 25 cents probably didn’t help the birdseed demand.  Winter wheat basis remains firm and I have had mills looking for offers.  I think one really should consider locking in basis on a decent portion of old crop wheat that isn’t sold.  Corn basis as mentioned above is more than volatile; but probably not as volatile as the millet price situation.  The millet market today I can’t tell within 10 cents or 5 bucks a bushel.  I jokingly told one today someplace between 30 cents a pound to 60 cents a pound.  If someone wants it the top end or higher might trade.  If not I am not sure what level I can sell it at.

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