Monday, July 8, 2013

Closing Comments - Condition Recap 7-8-13

The grain markets closed mixed in choppy rather thin price action today.

Corn was up 7-9 cents, KC wheat was up 3, MPLS wheat was down 3, CBOT wheat was up 3, soybeans were up 21-24 cents, the DOW was up 90 points, the US dollar was off a couple hundred points with the September dollar at 84.44, crude was down 30 cents at 102.93, and gold was up 22 bucks at 1235 an ounce.

A dead cat bounce is what lead most of the headlines.  Short covering in an oversold market; some talk of some heat in some of the deferred forecasts also was a headline for our bounce today.

Overall I would say that for weather to be bullish we need to see forecasts that are hot and dry.  I have seen many comments about corn rolling and seen other comments that some areas are still getting too much moisture.  No one will question the development of our crops; the fact that it is overall very slow and very much behind.  Many are debating who needs what for moisture and heat.  But for our markets to get bullish we need to have a headline that the funds can get behind.  The most likely weather headline right now is hot and dry during pollination.  The lack of root system and other agronomic factors that go into raising a crop are not a headline to get the funds thinking our crop is getting smaller.

The headline that we have seen over the past several weeks is crop conditions improving.  That headline continued for the most part this afternoon as spring wheat conditions improved by 4%, corn conditions improved by 1%, and soybean conditions were unchanged.

Last year at this time corn conditions had 40% of the crop rated Good/Excellent; this week this year we are at 68%.  We have 8% of the crop rated poor/very poor versus 30% a year ago. 

I believe corn conditions have now increased every week or been steady since they came out.  So what does that tell us for Thursday’s USDA report?  We had increased acres via the June 28th report and now we have to think that yield also gets increased; just based on the weekly crop conditions. 

More production with all of the unknowns about demand is not exactly bullish.  Sure maybe the USDA and market is getting ahead of itself on the size of the crop?  But when will it matter?   I don’t think it matters today and how patient and stress full could things get in the mean time while the market determines the crop size?  What if the actual 14 billion bushels of corn production ideas are accurate?

One positive that happened on one of the charts today was an outside bullish day leaving a bullish key reversals.  This happened in November soybeans.  It was also nice to December corn close back above 5.00.  Spreads in KC and CBOT wheat also firmed up a little today.

This a.m. we reported sales to China for soft red wheat and soybeans.  We also sold some new crop corn to Mexico.  Export shipments this a.m. were good for wheat and poor for corn and soybeans.

One other positive headline has to be the headline for energy prices. Crude back over 100 should be overall friendly.  Think of it this way.  Is 5.00 corn cheap if crude is over 100 bucks????  Not sure; but it might be at some point to a fund manager. 

Ethanol margins seem to still be good.  One of the plants I deal with mentioned that they got some August ethanol sold; but are still struggling to sell September ethanol; because of the big inverse. 

Corn basis remains super volatile.  Perhaps one should be looking at locking in the basis but locking in the basis doesn’t help if the board decides to stay under pressure.  It maybe stops the bleeding……….and helps lock in the inverse but I have to wonder how this old crop corn situation shakes out.  Will all the buyers be able to find the product that they need?  Will we see an end of the marketing year cash squeeze or will some ethanol plants have to shut down?   Very high stakes poker coming up over the next 30-60 days for old crop corn. 

I heard of lots of wheat out of Oklahoma moving; my one buyer mentioned a large amount of shuttles that he bought from one elevator last week.

The sunflower market feels softer; but it might just be thinner.  As many buyers have been out for a week or more.  The NSA had a meeting the last week in June and then last week we had the 4th of July holiday.  Bottom line is we have had way more product looking for homes then we have had buyers.  I think the acre situation or lack of acres that got planted in ND is still very friendly; but the nearby demand is soft at best.

When we look at what prices have done over the past few months and then look at the fundamentals or perceived fundamentals things look scary.  I guess one positive is how the markets typically look at the tops and bottoms.  Last summer when we made our highs everyone was thinking we would keep going up.  Now today we have more bears then we have had for a very long time.  Does that mean we have things looking bad enough to make an actual bottom??????  Not sure; I think the thing we have lacked to make a bottom is producer fear selling.

We need to keep in mind that the game has changed; most that read this don’t have to sell like they used to.  How much is that worth when it comes to prices and basis? 

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

Here is CHS Hedging Recap on crop conditions

Jeremey Frost
Grain Merchandiser
Midwest Cooperatives


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