Wednesday, November 20, 2013

Grain Market Comments 11-20-2013

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.

Thank you


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