Thursday, June 6, 2013

opening comments - poor export sales continue - will ethanol plants shut down?

Markets are called mixed this a.m. behind a choppy mixed overnight session.

When the overnight session ended old crop corn was off a penny, new crop corn was up 3 cents, KC wheat was unchanged, MPLS wheat was up 2, CBOT wheat was unchanged, July soybeans were down 3 cents a bushel, and November soybeans were off ½ cent a bushel. The stock market got hit hard  yesterday and as of 8:15 stock market futures are pointing towards another small loss on the opening with the DOW futures off about 20 points, crude is up 70 cents a barrel, gold is about unchanged, and the US dollar is off a couple hundred points with the cash index at about 82.35.

Yesterday was about strong old crop demand and tight old crop balance sheets.  Weather also looked like it might be providing a window for some areas to finish planting; some rainfall wasn’t as much as expected and some of the deferred forecasts show some warm areas as well as some dry areas.  Bottom line is we are in a weather market and really a future weather market.  The market doesn’t seem to care much what we do or don’t have done; it seems to focus more on what it thinks we will do based on the weather forecasts.  This should keep us very volatile and choppy; weather can drive us up one day and sell us off the next.  Just depends on what the market perceives the weather is doing to our crop size.  With the tight old crop balance sheet we should keep some weather premium in our prices for some time.  With the huge amount getting done at once pollination time for corn will be extra important.

Yesterday we did have ethanol numbers out.  Very strong as production increased to its highest level since about last year at this time.  Stocks did bounce but not very much; they are still as low as they have been since November of 2010.  Ethanol stocks are about 2 and half weeks worth.  That tells me that if demand doesn’t change that if ½ of the ethanol plants shut down this summer that we run out of ethanol within a couple weeks of the plants shutting down.  Most ethanol plants don’t want coverage for Aug/Sept because of the huge inverse that both the corn board has as well as the ethanol price inverse.  But If supplies or ethanol stocks get lower what will happen to the ethanol price?  Well it shouldn’t go down.  If ethanol price rallied would the shut down plants start back up?  They sure might if margins are good.  Keep in mind the plants have an expense running or not; that’s why many have ran in the red many times the past couple of years.

Bottom line is the old crop corn tight stock story isn’t about to be saved in the next few days or even weeks.  Same can probably be said with beans.  Sure we can import some; but can we get them to the right spot?  Same with ethanol imports; can we import some?  Yes but is that really bearish if we have to?

News out this a.m. include export sales.  Same story as recently strong soybean meal sales, weak old crop soybean sales, weak old crop corn sales, and weak old crop wheat sales. 

New crop sales where good for wheat at 24.4 million bushels; that puts us at 228.6 million bushels to start the marketing year versus last year’s 140.4; keep in mind the USDA has a year over year decrease in wheat exports.  So we are off to a good pace.  But keep in mind weather for the wheat areas in the world has been good the past 30 days or so.  Talk is that wheat crops in other areas are increasing.  Early to say that with much confidence but that is the talk.

New crop soybeans sales came in at 21.7 million bushels; which leaves us at 405.9 million new crop on the book.  About the same as last year at this time.  New crop bean meal sales are also very strong at 705 th tones so far versus 539 last year at this time.

New crop corn sales were horrible only at 2 million bushels; giving us a new crop total of 190.7 million; less than the 217.4 that we had a year ago at this time.  Keep in mind here that the USDA has a big year over year increase.

With the lack of exports that past few weeks some are questioning if the USDA will drop corn and bean exports.  But most think if that is done we could see soybean crush increased and ethanol usage increased.  I guess we will find out in a little under a week.  Bottom line is that our exports as of late have not been a reason for the funds to buy grains.  If anything our export headline screams sell….sell….sell

I did see some Lanworth estimates out for crop sizes.  The corn and bean size smaller then the USDA but much bigger then what the bulls would want to see.  Corn at 13.8 billion bushels and beans at 3.4 billion bushels.  They think North Dakota has lost 700k acres.

If they are right not exactly a path to higher prices.  It means the job of the market is still to find demand.

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