Grain Markets 1-27-2011

Markets are called mixed to better this a.m. behind an overnight session that saw wheat continue to show strength, while corn was slightly positive up 1-2 cents, and beans where are hair in the red.

We did have export sales out this a.m. and they where good for wheat and beans while very poor on corn.  Wheat came in at 32.9 million bushels which was in line with trade estimates and more then two times what we need on a per week basis to meet current USDA projections, beans came in at 28.7 million bushels, corn was very poor coming in at only 16.4 million bushels.

The markets did open up a little weaker then where the over night session left off at and as of 10:20 are showing a little extra weakness; presently corn is down about 8, CBOT wheat is off about 7, MPLS wheat is down 2, and KC wheat is off a nickel, and beans are up a couple cents.

As the day went on the markets remained very volatile but the bears did end up winning most of the battles.  As at the end of the day only soybeans where left in the green; as they closed up a couple on new crop and old crop beans where up 14, corn lead the pressure down off 7 cents, KC wheat was 8 lower, CBOT wheat was down a dime, and MPLS finish 1-2 lower.  For much of the session MPLS did trade positive but at the end of the day the pressure from the other grains was too much.

MPLS strength probably steamed from are report out regarding Japan not taking some Canadian wheat because it was too low in protein.  Thus the protein wheat (MPLS) showed a little extra strength.

Technically some of the points I have been referring to the past couple days continued to hold today; CBOT March wheat tested the Aug high but couldn’t close above it or even take it out.  The corn market continues to trade sideways over the past week; still not able to take out the Key Bearish Reversal High we seen a little over a week ago.

Below is a forward with some good info on acreage.  It tells me that we have an acre war; but the potential is out there that everyone of the grains wins and if that happens at the same time our high prices curve demand we have the potential for a fundamental change. 

So when I think of risk management I want to remember where the price outlook was six months ago and how dramatically it changed.  As the potential for the producers to step up to the plate with big crops when prices are strong is real and econ 101 will and has always said that high prices curve demand and add supply.

I wouldn’t want to get super bearish as right now the known fundamentals are very friendly across the board; the thing that is out there is the known unknown fundamentals (i.e. we know that acres planted and supply could change), and then we also have the unknown factors or events that could swing the markets at anytime.

So when looking at risk management keep in mind where we have been and how history has shown us that when we least expect it the markets have the ability to change.

Please let us know if there is anything we can do for you.

FROM RJOMRT 

(C) U.S. Acreage Discussions Heat UpFundamentals, January 26, 2011; 2:05pm Over the last week, there has been increasing talk in the market regarding the upcoming acreage play between corn, soybeans, spring wheat and cotton. With multiple crops apparently needing solid acreage increases from last year, the debate over where the acres are going to come from has heated up. Here we take a broad view of historical U.S. crop acreage in an attempt to shed some early light. In a year such as this, with fundamentally constructive balance sheets for multiple commodities and market prices reacting accordingly, the question of, "Is there enough acreage to go around?" is becoming an increasingly common one. Let's take a look. In a very general statement, total planted crop land in the U.S. has been declining since the mid-1990s. During much of the 2000s, acreage enrolled in the Conservation Reserve Program (CRP) was increasing, but not nearly to the same extent as total cropland area was declining. The often-used reasoning behind the decline in total acreage was urban sprawl as land was absorbed further and further outside of metropolitan areas for non-agricultural use. We can see in the following chart, total acreage planted to all crops in the U.S. sat at 334 million acres in 1996 and, for the most part, steadily declined over the next decade to just 316 million acres in 2006, reflecting an 18 million acre drop in area under cultivation during the 10-year period. Interestingly, during this timeframe, total acreage enrolled in the CRP program was essentially unchanged with 35.4 million acres enrolled in 1996 and 36.0 million acre enrolled in 2006. The 2nd chart below shows the annual enrollment in the CRP program since 1990, and while there was a significant decline in CRP acreage from 1996-1999, total acreage planted to all crops actually declined during this timeframe, as well. Looking forward from there, while CRP acreage increased by a total of 6 million acres by 2006, total cropland acreage declined by 13 million acres. The point here is that while many may look strongly to potential changes in CRP acreage for an indication of changes in crop area, that situation hasn't really played out very convincingly in the past. In taking this look at total crop acreage vs CRP acreage one step forward, a very important situation is shown pertaining to this year. In the following chart, we show total acreage planted to major crops since 1990. Looking at fundamental similarities and the need for acreage, 2007 and 2008 stand out as a massive increase in corn acreage was seen in 2007, followed by a massive increase in soybean acreage in 2008. During these two years, total acreage planted to major crops increased by nearly 10 million acres, while total acres enrolled in CRP declined only 1.5 million acres. Additionally, this sharp jump in crop land - essentially "finding" 8.5 million acres - was smack in the face of the concept of urban sprawl permanently reducing available crop area. What happened in 2007 and 2008 to result in such a large increase in acres? Simply put, market prices exploded. Heading into the spring of 2008, the July contracts for corn, soybeans, wheat and cotton were all at or very near all-time high levels for that timeframe. The following chart shows the July contract's price of corn, soybeans, wheat and cotton as of February 1 since 2000 and, as seen, soybeans near $13.00, wheat near $9.00, corn above $5.00 and cotton at 70 cents/pound were all extremely high price levels heading into the spring months. What happened as a result? Area planted to major crops in 2008 jumped nearly 5 million acres from 2008, in addition to the 5 million acre increase seen in 2007. In the last two years, overall prices for these four commodities had fallen back from the 2008 levels and, accordingly, total planted cropland to major crops has declined 8.5 million acres from 2008, even as total acreage in the CRP program has declined more than 3 million acres. Now, let's keep the chart above in context of the current situation. Never in modern history have corn, soybean, wheat and cotton prices all been at their highest levels as of early February at the same time as current exists. A quick scan across each of the corresponding-colored bars reveals the historic nature of the current price structure in the major U.S. commodity markets. We will contend that what occurred in 2007 and 2008, with a substantial "finding" of acreage, is an extremely plausible situation to occur again this spring. With the fact that acreage enrolled in the CRP is at decade-low levels and the knowledge of the 10 million acre "find" during 2007-2008 amid soaring market prices, a total acreage increase of historic magnitude may be able to be achieved this spring. In a year such as this, the concept of direct acreage switches between crops simply may not apply. We have all been ingrained with the concept that if corn acreage is to increase 5 million acres, those acres need to come from some other crop. The situation in 2007 and 2008 proved that is not true. Previously "lost acreage to urban sprawl" was found amid historically high prices. The acreage may very well be there...it's just a matter of drawing it out. Be very cautious of the concept that there is a "fixed" amount of acreage available and 1-for-1 acreage switches need to occur between crops. If total major cropland acreage was down 8.5 million acres over the last two years, can that entire 8.5 million acres, plus the 3 million acres in lower CRP enrollment since 2008, all be "found" this spring with prices at all-time high levels? For reference, the two following charts step one month forward in each case to provide a look at July corn, soybean, wheat and cotton prices on March 1 and April 1 as spring-time planting nears. These charts can be used as a reference in the coming months to compare eventual price moves to this year's July contracts.