Grain Market Comments 2-5-2014

Grain markets are called mixed to easier this morning on a little more producer selling after the nice bounce we had yesterday.

Yesterday we had very strong markets all around for the grains; last night and this morning we see a little correction or profit taking from the big rally.  When the overnight session ended we had corn off 2 cents, KC wheat off 2, MPLS wheat off 2, CBOT wheat off 3, and soybeans down 2.  At 8:00 we have rather quiet outside markets with the US dollar about unchanged with the cash index at 81.119,  the mini DOW futures are pointing towards a softer start of about 5 points on the DOW, gold is up 15 bucks an ounce at 1267.5 per ounce, and crude is up about 80 cents a barrel at 98.00 on the March crude oil contract.

First off many are asking what got into wheat yesterday?  It appeared to be a very oversold market finally getting a very overdue bounce.  On the heels of short covering as the funds are still short plenty of corn and wheat; while they remain long plenty of beans. 

What trigger the bounce?  Part of the strength was just follow up technical buying/short covering from the previous sessions.  The news out there that helped was the state crop conditions.  I believe Kansas wheat was at 58% G/E at the end of December and the ratings on Monday had KS wheat rated 38% G/E.  Bottom line is the dry weather south of us has added some concern for wheat.  As has possible winter kill the past few weeks.

Wheat also had Stats Canada out; which I thought was neutral; very big crop but in line with expectations.

Many of the charts took out some resistance areas; such as previous highs and moving averages.

I don’t see much different on the weather front.  But here is CHS Hedging Weather link for today.  http://chshedging.com/UserFiles/Documents/2014/Research/Weather/2.5.14%20ag_trader_brief_usa_country_hedging.pdf

One thing I did notice yesterday was a big increase in producer selling; which should happen when we have big supplies and we get a bounce.  It is just good risk management. 

As for how far can a rally take us; in my opinion our markets always have been able to overdo moves.  So for us to see a bigger bounce then one would thing shouldn’t be ruled out.  Keep in mind that our markets – wheat and corn; have lost a lot since the highs last year; wheat has even lost a lot since its October highs.  But as for risk management I think selling into the rallies is the only way to go.

As for longer term whether we see 2.00 corn, 3.00 corn, 5.00, 6.00, or higher that depends so much on the yield.  140-150 bushel or less for corn yield this year should provide plenty of fireworks.  Whereas 160-170 or higher should make rallies hard to come by.  Yes I think we have some weather scares at sometime; but when and what happens really will depend on mother nature.  I think we just need to realize that we have potential to have corn production and yield and thus prices at such a wide spread that either extreme could be scary.  So finding a way to be comfortable with the unknown might not be that easy; as no one wants to hold corn and watch it drop to 3.00 or less; nor does anyone want to sell 4.00 type corn and watch it go to 5.00 or 6.00 but the reality either one of those prices is very possible at this stage in the game.

As for wheat and beans, I think they are simply forced to follow corn to some extent.  As it sits right now we don’t have this big reason to have an acre war; but every acre that corn loses help make weather that much more important.  One also has to ask themselves what about some of the grains like spring wheat; does it really work for new crop? 

Bottom line for all of the above talk is we are entering a stage of plenty of unknowns.  Hopefully some of those unknowns will add some support to our markets.  Just realize that when it comes to marketing the possible extremes that are still open.  So it might make sense to use tools that leave you with the most options and most comfort as we move forward.

Wheat basis continues to be a big time moving target.  It all depends on the railroad and remains a catch 22.  If we see good rail movement then we are able to pay fairly decent offers on high pro spring wheat; while if we actually got cars the bids probably wouldn’t be nearly as strong.

Birdseed business remains strong; but buying interest is still weak.   I think there is plenty of upside potential; but we also need a catalyst to cause some buying interest. 

Don’t forget our weekly marketing meeting in Onida at 2:30 today Wednesday.

Morning Highlights

By Richard Plackemeier

Highlights

• Ukraine grain exports fell by 40% in January to 2.79 mil tons. However, total exports for their marketing year were at 21.9 mil tons [mostly wheat and corn].
• A very large snow system developed across the central plains, bringing needed moisture to much of the HRW belt. The system moves into the Northeastern US today, bringing frigid cold temps behind.
• Yesterday’s fund buying in corn estimated at 12,000 contracts, wheat 7,000, beans 10,000.
• Goldman Sachs index roll begins Friday, buying May, selling March futures.
• US Senate approves Farm Bill on a 68-32 vote.

Corn

• A private analyst reduced Brazilian and Argentine corn production ideas by a cumulative 3.4 mil tons.
• Technical buying and short covering sponsoring another day up in corn.CH closes above 100 day moving average [4.40] for first time since June 2012.

Outlook: corn kept pace with beans and wheat trading higher yesterday. If producer selling pressure is absorbed, the market could hold respectable gains through the week. Steady to 2 lower.

Oilseeds

• Stats Canada canola stocks came in at 12.6 mil tons, versus last year at 8.1 mil.
• There were reports the Argentine government would take a ‘more aggressive stance’ to encourage farmers to sell beans. It is estimated that farmers have held back close to 7 mil tons of last year’s beans due to inflationary currency fears.
• Parts of Brazil have remained dry, missing recent rains, and this idea added to the support in futures prices.
• Mar bean meal set a new contract high close at $447.00 [+$13].

Outlook: beans continued higher overnight, but seeing slightly lower early going trade. After two days of higher trade, could see South American farmer pricing keep a lid on additional gains. Steady to 3 lower.

Wheat

• Stats Canada all wheat stocks came in at 28.4 mil tons, versus last year at 20.6 mil.
• The magnitude of state HRW declines spurred further short covering in the wheat complex.G/E changes included: KS from 58% to 35%, TX from 23% to 19%, OK from 63% to 36%, NE from 65% to 46%.
• Wheat spreads remained firm, with KWH/K pushing up to +9 inverse, with WH/K at -2 carry.KWH/N traded up to +16 inverse.
• The wheat complex is still feeding off of short covering and technical support. KWH took out the previous high [6.42 ¾ ] at the close yesterday.

Outlook: after a +22 cent surge yesterday, the wheat complex is seeing some minor setback overnight.  However, with the solid technical close yesterday, additional short-covering in Chicao and KC would not be ruled out.  2-4 cents lower.

Jeremey Frost

Grain Merchandiser

Midwest Cooperatives

800-658-5535

800-658-3670

605-295-3100 (cell)

605-258-2166 (fax)

jeremey.frost@chsinc.com

www.midwestcooperatives.com

http://grainmarketingplans.blogspot.com/

 Follow On:

This communication may contain privileged and/or confidential information and is intended only for the use of the individual or entity to which it is addressed.  If the reader of this message is not the intended recipient, you are hereby notified that any unauthorized dissemination, distribution, and/or use of this communication is strictly prohibited.   This communication makes no representation or warranty regarding the correctness of any information contained herein, or the appropriateness of any transaction for any person.  Nothing herein shall be construed as a recommendation to buy or sell any commodity contract.  There is a risk of loss when trading commodity futures or options.