Friday, June 7, 2013

Opening Grain Market Comments - USDA estimates - 6-7-13

Markets are called better this a.m. behind a little wetter forecast and a firmer overnight session.

Old crop corn was up 2 cents, new crop corn was up 7 cents, KC wheat was up 3 cents, MPLS wheat was up 6, CBOT wheat was up 3, July soybeans were up 12 cents, and November soybeans where 22 higher.  Outside markets have gold down 34 bucks an ounce, crude down 80 cents a barrel, the US dollar up a couple hundred points at 81.73, and it looks like the stock market should have a good start with the DOW futures up 50-60 points.

Rain makes grain?  Not the focus today.  Today the focus seemed to have shifted a little to the lack of planting, the huge possible prevent planting acres, and the fact that potential yield loss or yield drag.  Some areas have way too much moisture and most all areas are lacking heat units.  Spraying seems to have fell behind.  Bottom line is the market at least for right now looks like it is focusing on the negatives in regards to production prospects.

I have seen some estimates starting to show up for next week’s USDA report and I would say the estimates are neutral to bearish.  For the most part old crop balance sheets are projected to be about unchanged from last month.  Meaning about 759 million bushels for corn, 124 million bushels of old crop soybeans, and about  734 million bushels of old crop wheat.

The big ranges and really big question mark is the new crop balance sheet and new crop production.  This numbers will be watched; but what mother nature does in the future will really determine how big our crops will or won’t be.  We can’t really have a true accurate production number with some stuff not planted and other stuff just barely up.  It will come down to the weather over the next few months, when pollination hits, and when we see the first freeze.  The fact is also will plenty of moisture today we might not realize some of the agronomic damage done until the combines hit.  Bottom line is the market is not looking for the USDA to give us super bullish numbers.  The risk is that we don’t get them or that the USDA just doesn’t agree.

The estimates for winter wheat production are at about 1.468 billion bushels versus 1.486 billion bushels last month.  Small decrease in HRW production; but still not enough in my opinion.  Wheat carryout for 2014 is pegged at 655 million bushels versus 670 last month.

Corn carryout is pegged at 1.8 billion bushels for 2014 versus 2.0 billion bushels last month.  Still not exactly a bullish number.  Personally I think that the USDA prints something higher then this just because they seem to be late to the game and because of how aggressive they were last month on our demand usage.  A rather big year over year increase; which can be done but might take lower prices to accomplish?  At the very least the USDA logic for the increase was via lower prices.  So if we don’t have lower prices will we see demand as strong as once thought?  Maybe, but I wouldn’t want to be on record saying big increase in demand via higher prices.

Soybean ending stocks for 2014 are pegged at 268 million bushels.  Keep in mind here some of the bears have talked about longer term seeing a number closer to 350-400 million bushel carryout.  The year over year increase in China demand on the May report is off of the charts and might be a little unrealistic?

I think that the big number and big concern will be corn.  It will remain King and should lead the way.  In regards to the carryout number I think that the market will focus more on weather and production.  What type of a production number equals what for a fair price?  I don’t really know; but the Van Trump report had a very good comment on this the other day.

Here is what the Van Trump report said; this is from 6-5-2013

“Corn supply estimates, in my opinion, have to start being tapered bad. Planted acres look as if they will be trimmed back by 3-5 million, and yields will more than likely be moving lower. My gut tells me "harvested" acreage will eventually end up being somewhere around 86 million. In addition the 158 yield currently being estimated by the USDA seems to be more like 155 or possibly even sub-150 on continued moisture problems in key producing states like IA, MN, IL etc...  Bottom-line, despite bearish talk of China finally purchasing Argentine corn, the bird-flu virus hurting demand, Brazil producing another record crop, Ukraine supplies being much more competitive, and so on, I am going to continue staying in a "holding pattern," opting not to price any additional new-crop bushels until more cards are dealt from the deck. Right now, and for the next 60-days, I think it is ALL about US "weather" and "yields." With 45% of our cash sold and revenue insurance in place, I feel comfortable calling all bets in order to see a few more cards. I would actually move to an even more bullish bias "IF" the corn market could find a solid "demand" story. Below is a simply guide to where I think prices could go according to yields. Keep in mind this formal hinges on harvested acres falling to 86 million. Yields are listed in ranges, Example: a yield in the 150 range will more than likely keep prices between $4.50 and $6.00 depending on what end of the range yields ultimately fall. Hope this gives you a little better roadmap.
  • $8.00 per bushel (+) = 86 mil acres @ 120's bpa = 10.3 to 10.9 billion bushels
  • $7.00 to $8.00 = 86 mil acres @ 130's bpa = 11.2 to 11.9 billion bushels 
  • $6.00 to $7.00 = 86 mil acres @ 140's bpa = 12.0 to 12.8 billion bushels 
  • $4.50 to $6.00 = 86 mil acres @ 150's bpa = 12.9 to 13.6 billion bushels 
  • $3.50 to $5.00 = 86 mil acres @ 160's bpa = 13.7 billion to 14 billion plus”  

Not a lot of other news out this a.m.  I do have some buyers looking for some sunflowers and some in particular for confection sunflowers and con oil sunflowers.  It sounds like North Dakota might lose 20-30% of the expected acres from too much moisture.  Calendar is getting late for some of the guys up there and they keep getting moisture.  Bottom line is buyers are looking for some acres of sunflowers.  Longer term balance sheet projections don’t appear to change much; so it might be a good chance to make some sales while the guys are looking.  For more details on the confection or con oil programs give us a call.   We have more than one guy looking for acres and these programs offer “Act of God” protection.

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