Monday, June 3, 2013

Closing Grain Market Comments - Crop Progress 6-3-2013

Markets closed mixed today in rather choppy volatile price action.

Old crop corn was down 6 cents a bushel, new crop corn was down 7 cents a bushel, KC wheat was up ½ of a cent, MPLS wheat was up 3 cents, CBOT wheat was 3 cents higher, July soybeans were 22 ½ cents higher, November soybeans were up 21 ¼, the US dollar was hammered down 720 points with the cash index back at 82.650, the equity markets bounced with the DOW up 140 points, crude was down 1.40 a barrel, and Gold was up 18 bucks an ounce.

What happened today to cause the major swing in the corn market?  First off when we hit the levels we did on the board we had over 5.00 local cash corn which helped some producer selling.  I believe we got as high as 5.10 cash off the combine corn; and bought some deferred corn for June around 5.50; so producer selling was increase when the board was up.  We also hit resistance on the charts and I just don’t know that we had a reason to go above resistance today.  I know end users seem to be patient and don’t look like they want to push prices higher.  As for the funds I don’t think they know that we need to be higher.

Still plenty of estimates out there have corn acres only down 2-3 million; with carryout numbers closer to 2 billion then 1 billion.  And a carryout of 1.5 to 2.0 billion isn’t going to get the fund managers super bullish on fundamentals.  So the bottom line is we have potential to see new crop corn go higher; but we probably don’t need to do that; at least not yet.  Now should the USDA show a smaller carryout in June (which I think is unlikely) or in July (which is possible but really still to be determined via mother nature and other factors) the funds could easily get on the bandwagon and decide to buy.  But right now today we have plenty of debate on how tight our balance sheet is or isn’t and not enough evidence for the funds to really want to make another leg up.

Should we break the recent highs technically it could open the doors to another quick 20 cents; but first off we have to break resistance at a point that producers are lining up to sell as are some technical traders; and we don’t have the end users in a panic mode to help.  Keep in mind ethanol margins are great nearby; but from what I am told new crop ethanol margins are nothing great.

Bottom line is today’s corn turn around seemed to be technical driven.  Now whether it is just a pause before moving higher or a reversal to lower prices is still to be determined.   Most likely determined by mother nature and future USDA reports.

This afternoon we did have a crop progress update.  It showed corn planting at 91%; which leaves us at about 8 million acres of corn left to plant.  So that means we have roughly 89 million acres planted.  If we leave yield at 158 which some will argue as way too high and others will argue as too low; gives us a production number of about 12.9 billion bushels.   The market feels like it is trading production closer to 13.5 billion or so. 

Fundamentally IF we have production of 12.9 billion bushels we still need to find demand from this last year as we are only projected to use about 11.1 billion bushels.  So the job of the market still seems to be find demand.  Something that isn’t suppose to be done via higher prices but via lower prices.

Now keep in mind that the bulls see production closer to 12 billion; with some of the super bulls indicating production closer to this last year’s 10.78 billion bushel production.  While the bear’s see production of 14 to 14.5 billion.  In my opinion it is really way too early to know; the crop will be made or broke based on mother nature in the months to come. 

As for crop conditions today we had corn come in at 63% Good/Excellent; which was slightly above trade estimates; but well below last year and the past 5 year average. 

Soybean planting came in at 57% which was below the estimate and below the average of 76%.  Now is it strong enough for our markets to continue the $1.25 rally that we have had?  I guess I don’t know the answer.  What I do know is that the market is trying to give a producer an incentive to plant soybeans via the prices.  Demand has been good for new crop soybeans too.  Now would I be aggressive selling beans; maybe not in our area because of how hit and miss our bean crop is.  But if I was in the areas east of us that have good APH yields and I had things planted I would think making some sales or rewarding this rally would just be good business.  Forget whether we go up or down from here; bottom line is it is good business to make profitable sales especially if you can paint a very unprofitable situation should things shake out a certain way.

Spring wheat planting did bounce to 80%;  G/E spring wheat conditions came in at 64%; 10 % below last year’s initial rating.  Even the South Dakota crop is 10% below last year’s which I found interesting.  Last year’s crop if you remember started off big and got smaller and smaller.  Only time will tell if we see this crop get smaller or bigger as we go forward.  The one thing that this year’s crop has going for it is moisture.  Last year by this time a lack of moisture was hurting it just wasn’t realized or acknowledged by the USDA and some of the traders.  I don’t think we will have a lack of moisture issue anytime in the next 30 days; so the crop likely gets bigger if we get some heat and growing days.  Now if we keep getting rain and cool weather like in some of the forecasts perhaps the crop conditions can get take a step back?  But in my opinion it will be tough for our crop conditions to get much worse anytime soon.  It’s not like the crop conditions say good/bad based on this date.

Here is CHS Hedging link for more crop condition info.

Other news out there today included this morning’s export shipments.  Good for wheat; but slightly below estimates.  Most ideas are that our final wheat export number will be very close to the USDA’s projection.  Both corn and soybeans were on the low end of estimates and both below what we need on a per week basis to meet USDA projections.

I did see a “Reuters poll of 15 analysts is based on conditions as of Monday, June 3” for corn and soybean production and acres.  Not really a bullish game changer

                             Corn                         Soybean             
                             Acres   Yield     Prod       Acres    Yield    Prod

 High                        96.500   165.000  14.437      79.876   44.500  3.467
 Low                         93.500   156.000  13.416      77.100   42.500  3.200
 Average                     95.113   158.231  13.825      78.238   43.668  3.362
 USDA May Estimate           97.300   158.000  14.140      77.100   44.500  3.390

In our office we have a couple seasonal charts up from a presentation that Ed Usset did for us.  Looking at the charts we look to be very close to going over a ledge.  Now who knows how things will work out this year; sales made about a year ago would have been the biggest mistake in the world and done a good job of hitting the lows for some of the markets.  Will this year shake out the same?  Where sales made now look bad in a few months?  If so what could cause that to happen?  Or will this year be the opposite of last year; will sales made in late May early June end up looking like the best sales of the year?

Don’t know the answer; don’t want to promote anything other than doing what makes one comfortable and making good business decisions.  In my opinion when I look at the seasonal tendency for corn over the last 30 years of so I think I probably want to have a game plan to get myself comfortable either via making some sales or using another strategy or strategies to get there.  Maybe buying some puts?  Maybe selling calls?  Maybe a combination?

Basis continues to be very hit and miss.  I did have a local ethanol plant looking for some nearby corn; which was good to see as just last week he indicated he was covered.

The birdseed market also remains rather thin; with rather wide bid – ask spreads.  Tough to buy product but equally tough to sell.

I do have some buyers looking for some new crop confection and con oil acres if anyone has interest looking at them.  Demand seems to be very strong in that market.  It does look like North Dakota may be losing some sunflower acres as they are only 20% planted versus the 5 year average of 55%.

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


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