Monday, November 25, 2013
Grain markets closed mixed to firmer today in choppy holiday mode trading.
Corn was up 2-3 cents, KC wheat was up 1-2 cents, Mpls wheat was unchanged to up 2, CBOT wheat was up 2-3, January soybeans up 10, November 2014 beans down 6 cents, the DOW up 8 points, crude down 75 cents, and the US dollar slightly firmer with the cash index at 80.849.
Not a big news day today; we did have export shipments out this morning and they were mixed. Wheat in expected range at 12.6 million bushels which is below what we need on a per week basis……….corn slightly better than we need and slightly better than expected at 30.2 million bushels……….soybeans strong at 66.9 million bushels…..but that was below trade estimates; while above what we need on a per week basis. The thing to keep in mind on exports is their seasonal pace. Right now are elevators busy shipping wheat to the export markets? No the main focus has been the fall crops so for wheat to lag right now shouldn’t be a big surprise. For beans to be strong and well above what we need on a per week basis also shouldn’t be a surprise. The biggest thing to look for on exports is the trend and the comparison to the same time periods in previous years.
This afternoon we had a crop progress report which basically showed that harvest is close to being done in most areas. Here is CHS Hedging recap.
Technically we did have a strong close on soybeans today so perhaps that can lead to more follow up buying. But we do need to keep in mind the fact that we already have the funds long plenty of soybeans; so now might also look like a spot for some profit taking. January soybeans had their highest close since late September. While wheat and corn are both within 10-15 cents of contract lows. Really a tale of two stories on the charts. Fundamentally you also have different stories.
You have a bean story that has super strong demand along with a balance sheet projection that is on the tight side of things. While you have a corn balance sheet that has 1 ½ -3 times the carryout that it has had the past couple years. The longer term thing that is a little scary is what happens if we raise a trend line or better corn crop in 2014? Can we afford to let 3-8 million acres of corn swing over to soybeans? I think the answer is yes if we can actually grow a big crop. 82 million acres at 170 bushel is a 13.940 billion bushel crop. Our expected usage for this present marketing year is just under 13 billion bushels and with the ethanol blend wall one can paint a picture where any production next year over 13-13.5 billion bushels could add to our carryout.
Then if we take it one step forward and add 5 million acres of soybeans at 40 bu an acre we are adding 200 million bushels. Can we add that straight to demand? If not we could see a soybean carryout that is near double what it presently is.
I am not trying to say that things in the grains will be dark for a long time or that this is how things with shake out. But rather I am trying to point out the fact that if the dominos line up correctly we might not like things for some time to come.
Domino number one was this year’s corn crop. Some of the domino’s lining up that we need to watch to see how they land are South America crop (right now projected as big), then how fast demand bounces back, and followed up by acres for next year’s grains. How many acres can corn afford to lose if we have a 2 billion bushel carryout heading into the game? What about if we hit big yields?
Hopefully some of the bearish talk like the above and what some advisors are pointing out means we are near a bottom. Things always look the darkest at the bottom. But one thing that almost is for certain is marketing grains going forward isn’t going to be easy. Thick nerves will be needed as should good risk management.
Elsewhere in the markets birdseed business remains slow. I don’t seem to have many end users looking for product right now. But there is a system that could help bring some moisture to the east coast. Hopefully it is cold enough that it is some snow that leads to birdseed demand.
Basis remains very choppy and volatile for the grains. It is all about timing and quality. If you get lucky to hit both at the right time you can see decent bids; otherwise it is liking giving the stuff away and this seems to be for nearly all the grains. As example right now it makes more sense for me to cancel rail car orders in Pierre for corn and truck the corn to my Onida facility and put it on a shuttle. Typically we don’t bid any different prices for the two locations on corn; but right now the spread is just huge between ethanol numbers and export numbers. Also as I have mentioned we have big spreads in quality and timing of grains like winter wheat, spring wheat, milo, and sunflowers. Timing is everything.
We are closed Thursday and Friday but there are grain markets on Friday. If anyone is looking to do any marketing I will be on my cell which is 605-295-3100.
Also with the Holiday look for basis and the board to be rather choppy. We really need some good new news to get the funds interested in owning corn and wheat; lately they just seem to want to sell the grains and buy the stock market. We need something to cause a spark in the grain markets and help money flow into our markets on the long side. Keep in mind that money flow is the trump card; we can have good prices when we have money flowing the right direction no matter what our supply/demand fundamental situation is like. Money flow and the funds are the trump card that we need to have in the deck once in a while.
Mark your calendars!!
Winter grain marketing workshop on January 20th in Pierre at the Ramkota at 10:00 a.m
Speaker - DTN Senior Analyst Darrin Newsom
Speaker - CHS Hedging Research Manager Tim Emslie
Please give us a call if there is anything we can do for you.
Wednesday, November 20, 2013
Grain Markets are called mixed this morning with a mixed overnight session.
In the overnight session corn was down 2, KC wheat was unchanged, MPLS wheat was down a penny, CBOT wheat was down a penny, and soybeans were unchanged. At 8:00 outside markets have gold down 12 bucks an ounce, crude up 30 cents a barrel, the US dollar down slightly with the cash index at 80.623, and stock market futures pointing towards an open near unchanged to slightly better.
A few news items the last several days, first off the EPA announcement or confirmation of rumors that the ethanol mandate will be lowered. Basically another headline that isn’t going to cause anyone or the funds in particular to buy corn. It opens the door to question our demand going forward. The good news is presently ethanol margins are good and ethanol demand is very strong. Later this morning we will get ethanol numbers and hopefully the trend of strong/better production with stocks unchanged to historically low can continue. This shows that short term an ethanol mandate really doesn’t matter; because if economically corn for ethanol works then plants will run and try to use as much as they can should it make them money.
The next news item that was really a headline the past few days was China rejecting a cargo of new crop corn from the US. From what I have heard this was the first US new crop cargo. But as you read deeper into it this appears to be just a one-time issue; as the strain that was rejected has been approved in other countries where we export a large amount of corn and it sounds like it should be approved in China shortly as well. Bottom line is this was another headline that didn’t lead to the funds buying; but to the funds selling.
We also had crop conditions early this week; but no big surprises there as we are nearing the end of fall harvest. Corn harvested came in at 91%, beans came in at 95%, milo 91%, and sunflowers at 65%. Personally I thought the South Dakota harvest % for sunflowers was a little light; but that might just be back-yard-again’s.
As for news last night I didn’t see much for headlines and news this time of the year should really focus on a couple things. Biggest thing should be demand and South America weather. There are still questions as to the size of the US crop; but most still feel it will get bigger as we get more USDA reports (January).
Even though our prices are very depressed from the levels they have been at many advisors and others in the industry still seem to be very bearish. I read one comment today that mentioned if things line up right we could still have a dollar or more down side left to the corn market. Most seem to feel that old crop (the crop just harvested) might be limited to 30-40 cents down side; but many feel that new crop for next year might have a dollar or more downside. Mainly because of the fact that it is going to be hard for our balance sheet to be much less then 2 billion bushels of carryout; plus last year and last spring we went into fall planting with many areas dry or still in a drought. That doesn’t look to be the case this year. So some are wondering if we actually grow a big crop for the US how big can the yields be?
My view is that when everyone is bearish eventually we make a bottom; but it needs some spark for it to happen. And until we get a spark we need to realize that there is probably much more downside price risk than anyone would like to consider possible. Don’t get me wrong there a plenty of bullish scenarios that can happen or shake out over the next several months; but we simply don’t have any that are showing enough life to get the funds or pro’s interested in owning grain.
When we get into these markets and when margins get tight marketing will be key. Finding the little extra here and there will go along way. The easiest way to find the little extra is to watch the signs out there and attempt to pick up a little extra via things like the carry in the board as well as perhaps some basis appreciation. Some producer will look to sell call options at levels they hope we get to. (even though I prefer to look at selling calls when implied volatility is a little stronger) There are hundreds of strategies even in “poor” markets; the bottom line is producers need to get them self comfortable and find a plan of action that works for them and there operation that fits there goals. If you need help please feel free to give us a call.
The other big thing I continue to see is basis for the different grains. It is so hit and miss it is unreal. Typically ending destinations are not the buyers like they used to be. The spreads on quality for corn, wheat, milo, and sunflowers is huge. Big spreads on corn that is going to ethanol plants versus corn going to the export houses. Also bigger spreads at the export houses for tw on corn. Wheat huge spreads depending on quality and timing. Milo huge spreads depending on if it is a birdseed buyer or export play going to China. Bottom line is basis and cash values on a lot of grain will depend on timing and logistics. Producing timing, elevator timing, and when rail cars show up. Look for things to be very choppy.
What volatile cash markets and basis does is it presents opportunities to have offers out should an elevator such as our self able to get things lined up to hit one of the hotter markets. Please let us know if you want to have an offer out there.
Thursday, November 14, 2013
Grain markets are called mixed this morning after a mixed overnight session.
In the overnight session we had corn unchanged, KC wheat up 6, MPLS wheat up 4, CBOT wheat up 7, and soybeans down 5. At 8:10 outside markets have the US dollar near unchanged, crude down 70 cents, gold up 15 bucks an ounce, and the DOW futures near unchanged.
Markets have been very quiet as of late; other then last week’s USDA report. Most of the news this week is a day late with the Veterans day holiday. This morning we will get ethanol data but we won’t see export sales until Friday.
Talk continues to be floating around that the EPA may lower the ethanol mandate; but keep in mind that right now ethanol margins are strong and our low stocks with high production point to the fact that economically ethanol works right now and that is just as important as a mandate; maybe even more.
NOPA crush will be out on Friday.
From CHS Hedging . “Japan has bought 60,346 tons of U.S. wheat. This is the first regular tender in four weeks that Japan has bought milling wheat. They also bought 45,594 tons of Canadian wheat and 23,505 tons of Australian wheat.”
One of the biggest things I am seeing develop for many of the grains is basis and logistic issues causing big basis swings. First off rail freight costs have been extremely volatile as of late. As harvest finishes up the demand for rail cars and trucks softens and thus the costs becomes less. But bigger then that seems to be quality issues and local issues that have spill over effects. This is happening for more than one grain.
One example is corn over the last month plenty of corn from Central South Dakota has went over to Iowa ethanol plants on rail and some of the typical ethanol plants that pull corn out of are area are absent and show little interest. Corn going to the corn capital during harvest? A couple reasons first off some areas have pockets where they just didn’t get all the acres in so there draw area will expand. Plus you have the issue with moisture; as many ethanol plants only take 17 or less moisture corn. So corn has to get dried down.
Another example is winter wheat and quality. South Dakota didn’t have much of winter wheat crop this year and some of the areas that did have winter wheat don’t have milling quality. So many mills have replaced winter wheat in the grind if they can. The biggest thing that we see is the difference in bids between quality that is milling quality and stuff that has to go to the export market or go to a big house to get blended.
Last example is the sunflower market. You have birdseed business that is slower then slow and buyers that don’t have interest. While you have confection buyers or buyers that buy sunflowers for human consumption super hungry for big seeds. The spread between the two bids is just huge and it all comes down to logistics. Sunflowers going to the birdseed that have to move today are cheap. But sunflowers going to the birdseed for say later in the year are reasonably priced. Why because buyers that can arbitrage know that the spread between crush sunflowers – dehull sunflowers – birdseed sunflowers has to be reasonable. So how this shakes out later is anyone’s guess but one of a couple things needs to happen. Birdseed sunflowers need to come up (which probably is how things shake out just not until things get put away) or the other markets(dehull – crush)come down in value.
Bottom line if one is looking to move sunflowers and you can put in the bin nearby you can see some decent offers getting hit.
Please give us a call if there is anything we can do for you.