Monday, June 24, 2013

Closing Market Comments - crop progress update 6-24-2013

Markets closed mixed to mainly weaker today. 

July corn was down 8 ½ cents a bushel, September corn was down 13 cents a bushel, December corn was off 10 cents a bushel, KC wheat was down 17-21, MPLS wheat was down 6, CBOT wheat was down 17-19, July soybeans up 19, November soybeans unchanged, the US dollar up a little with the cash index at 82.45, the DOW was off 140 points, crude was up 1.20 a barrel, and gold was down 11 bucks an ounce.

Overall an ugly day; there were times when MPLS wheat and soybeans showed some promises.  But overall spreads where very volatile.  KC spreads seen the nearby KC July wheat contract lose a dime to the 2014 July wheat contract.  From what I heard was a little harvest pressure and some houses in KC getting lower protein.  Something that they might sit on and try to drive spreads wider. 

Old crop new crop corn spreads also had a very choppy volatile day.  Some of the bids for old crop corn have rolled to the September contract; while others remain against the July.  Bottom line is that spread has been choppy and likely stays choppy.  Producer movement for grains has really slowed so you would think that the spreads firm up.  But that wasn’t the case for all of the grains today; as mentioned above in reference to KC wheat. 

Wheat basis also felt a little heavy; plenty moving lately on basis contracts and my contacts indicated that the Gulf HRW basis traded 7-25 cents less than it did last week.  Perhaps another reason that KC wheat spreads moved wider.  The domestic markets don’t seem much weaker but I have locally seen a lot of basis contracts done and some mills have stepped back.  Plus it really only seems like 1 or two mills have supported basis at these type of levels.  Most others are waiting for new crop; not they will get much out of this area.

This a.m. we had export shipments out.  Good for soybeans and poor for wheat and corn.

This afternoon we had a crop progress update.  Not much for surprises the big thing is that the crop condition trend has improve for corn, spring wheat, and soybeans.  Both corn and soybeans improved 1 % in the G/E while spring wheat improved 2%. 

If that trend continues we really have to be concerned about the seasonal pressure that we have seen over the last 20-30 years.  I have a couple seasonal charts in my office for November soybeans and December corn and they look like we go off of a cliff right around the start of July.  (These seasonal charts are older ones and that trend hasn’t been the case the last couple of years)

As each of the last couple of years we have made our highs around the August crop report; but last year at this time our crops had started to feel the stress of the drought.  As it stands out the numbers have improved the past couple of weeks.  The corn crop is now back to its 5 year average; with an uptrend.

Here is CHS Hedging recap

Right now the market seems to be focused on a couple things.  Wheat harvest updates (today seen as bearish via surprisingly good yields noted in central KS), the outside markets (bearish the past few days with economic concerns…..particularly in China), weather (overall has to be a little bearish….at least on the headlines as rain makes grain), and position squaring ahead of the report on Friday (unknown).  Bottom line is the headlines today mainly said sell. 

Now as we get further into the wheat harvest could we see more disappointments start to hit the headlines?  Yes of course; but just by nature producers are conservative when it comes to estimating the yields; now perhaps the market isn’t.  Could we see the outside markets stabilize and maybe see our markets focus on the Chinese demand which has been very strong for wheat as of late; with many talking about a smoking gun in regards to China and wheat.   Yes we could.

We could also debate weather; as I know plenty of agronomists that are more than concerned in some areas.

Could Friday’s report show way less acres then expected?  Could our quarterly stocks be less than expected?  After all basis and the spreads have said for some time that old crop corn and beans are tighter then tight.  Sure could happen that way.

The other way these things could play out is similar to today’s price action and headline.  Our crop could get bigger, the KC wheat harvest might not be as bad as we once thought, we might have under estimated the old crop stocks, and we could continue to see weak outside markets or an overall economic meltdown.

Bottom line is I don’t think many if any are going to be smart enough to take all of the hundreds and maybe thousands of variables and determine exactly how these markets will shake out.  If they did why would they tell anyone?  Not to say that someone won’t get it right as someone will.  But for risk management purposes and grain marketing purposes our job it to treat the above as unknowns and make good business decisions that fit our individual goals in a way that at the end of the day we can say we are comfortable with the decisions that we make.

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

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