Tuesday, January 7, 2014

Opening Grain Comments 1-7-2014 USDA report thoughts

The grain markets are called mixed to easier this morning after a mixed overnight session.  When the overnight session ended we had corn unchanged, KC wheat off a penny, MPLS wheat off a penny, CBOT wheat off 2 cents, and soybeans down 4 cents.  At 8:10 outside markets have the US dollar near unchanged with the cash index at 80.727, crude near unchanged at 93.57, gold down 5 bucks an ounce at 1232, and DOW mini futures pointing towards a positive 60-70 point start for the DOW.

Biggest thing in our markets is the hurry up and wait for Friday’s USDA report.  The January report has had a history of setting market direction for sometimes months.  It has a history of being a market mover and many times limit moves.   The one thing that I would say is that options; both calls and puts are pretty cheap heading into a historically big market moving report.  As example for corn you can buy both January calls and puts that are about 30 cents away from the market for 2-3 cents.  If the USDA gives us a report that moves us limit those are in the money and return 3-5 times of what one spent.  If we are limit for a couple days like last March we could see a 2-3 cents investment turn into 50 cents or more.  Personally if I had a lot of corn in the bin I think I would sleep better if I had some under the money protection for a few pennies.  I am always worried about what the USDA has to say.

The good news is that it should be hard to see a report that is super negative with where prices levels are at; as the market is already short and many have priced in a negative report with bigger production.  I emphasis “should be” because with the USDA anything is possible.  How would the market react if we have a corn carryout north of 2 billion bushels?  What if the USDA says corn production is 14.5 billion?

We will be having our marketing meeting this week in Onida on Wednesday at 2:30; at that time we will go over some possible strategies heading into the report.  But with implied volatility as low as it is and options as cheap as they are the right move might simply be to buy some extra insurance to get one comfortable heading into Friday’s report.

Here are some estimates for Friday’s report

U.S. 2013/14 ending stocks
                                 Wheat     Corn   Soybeans
Average trade estimate          0.557    1.861      0.149
Highest trade estimate          0.586    2.054      0.180
Lowest trade estimate           0.460    1.654      0.118
USDA December                   0.575    1.792      0.150

Source                       Corn    Avg.    Harv.   Soybean     Avg.     Harv.
                             Prod.   Yield    Acres     Prod.    Yield     Acres
Average trade estimate     14.066   161.2   87.174     3.279     43.3    75.749
Highest trade estimate     14.255   163.3   87.612     3.330     44.0    76.376
Lowest trade estimate      13.897   159.8   86.927     3.240     42.7    75.500
USDA November              13.989   160.4   87.232     3.258     43.0    75.688
USDA 2012 final            10.780   123.4   87.375     3.034     39.8    76.164

The other big thing I continue to see and deal with on a daily basis is railroad freight and how it is effecting basis.  We have seen basis all over the board and at times we are seeing some good numbers trade for high protein spring wheat.  Make sure to have offers out.

Here is more morning market information.  This is from CHS Hedging Morning Highlights.

Morning Highlights

By Kevin Stockard


  • The Senate voted to confirm Janet Yellen as the Fed Chair on Monday, the 15th chair in the Fed's history. She is the first female Fed Chair and helped develop the Fed's current communication policy.
  • The USDA January Supply and Demand report comes out at 11:00 AM CT on Friday, January 10, 2014, as well as Quarterly Stocks and Planted Acreage.
  • Outside markets as of 7:00 AM: crude oil is up 0.56, USD unchanged, and S&P futures are up 6.00


  • Corn export inspections came in below expectations at 19.3 million bushels vs. 28.7 million last week.
  • The Commitments of Traders report yesterday afternoon showed funds net short 163.8 contracts of corn vs. 156.9 the week prior
  • Argentina is hot and dry, but rains are still in the forecast for later in the week. The market does not seem as concerned about South American weather as it shifts its focus to Friday's USDA reports.

Outlook: March corn couldn't quite take out yesterday's high overnight, and will likely be choppy and leaning lower as markets wait to see the effects of index re-balancing.


  • China's Dalian soybeans were up 19 in overnight trade, while soymeal was down 4.5 and soyoil was down 78. There were deliveries of 245 bean oil contracts.
  • The Commitments of Traders report yesterday showed funds net long 116.5 contracts of soybeans vs. 135.5 the week prior.
  • Brazilian growing regions saw somewhat disappointing rains of less than 0.25" and look to receive below average rainfall over the next 10 days.

Outlook: March beans look set to test nearby support again after taking out yesterday's low overnight.


  • Argentina's wheat harvest, which is now about 75% complete, has been better than expected and there is talk that they will begin exporting as soon as Jan 10. This would cut into potential U.S. HRW business to Brazil.
  • India's PEC is set to offer 160 MT of wheat in a Wednesday tender, the first of three offers which will total 630 MT.
  • Temperatures remain very cold across the wheat belt. There is sufficient snow cover for most areas, but parts of eastern Indiana, north central Kentucky, and southern Ohio lack snow cover and could be in danger of winterkill.
  • The Commitments of Traders report yesterday showed funds net short 103.8 contracts of Chicago wheat vs. 102.4 the week prior, and net short 6.3 contracts of KC wheat vs. 4.9 the week prior.

Outlook: Wheat had a disappointing close yesterday and took out the low overnight. Strong export demand is being outweighed by huge competition.

Lastly I would like to invite you to our FREE Grain marketing seminar. January 20, 2014 -10 a.m. CST at the Ramkota in Pierre. Darrin Newsom, DTN Senior Analyst and Tim Emslie, Research Manager from CHS Hedging will be speaking on the grain markets. A Free Lunch will be served.

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