Markets closed weaker in the grains today despite outside
markets that turned positive.
Corn was down 2 in old crop, new crop corn was off 6 cents,
old crop beans where down 1, new crop beans where up 2, KC wheat was off 7
cents, MPLS wheat was off 2-3 cents, CBOT wheat was off 6 cents, crude was up
about 1.50 a barrel, metals higher, the dollar weaker with the cash index off
541 at 78.527, and equities ended higher with the DOW up 33 points.
Rather quiet and somewhat disappointing day for the grains; disappointing
from the fact that despite the outside turning around the grains
struggled. There is a crop report out on
Thursday and it appears the trade is once again setting up for a bullish crop
report. (Anyone remember the January crop
report that saw us with an unchanged carryout in corn yet we traded limit down
because the market was anticipating a cut to the carryout?)
Here are the pre-report estimates.
U.S. ending stocks 2011/12
Wheat Corn Soybeans
Average trade
estimate
0.867 0.791
0.273
Highest trade estimate
0.935
0.846 0.300
Lowest trade
estimate
0.836 0.680 0.245
USDA January
estimates 0.870
0.846
0.275
Global ending stocks 2011/12
Wheat
Corn Soybeans
Average trade estimate 208.963
124.896 61.380
Highest trade
estimate 210.000
128.140 63.770
Lowest trade
estimate 205.000
120.000 58.000
USDA January estimates 210.020 128.140 63.430
The above estimates really should be pointing out some risk;
or let down potential if we don’t see cuts like expected. The cuts being expected on the other hand do
have very sold logic behind them and I wouldn’t want to make a big bet that the
report doesn’t see cuts. After all
ethanol usage is ahead of pace on a weekly basis and exports have picked up and
both could allow some positive demand revisions.
Now the methodology as to how the USDA goes about its
carryout projections is up in the air and always will be kind of an unknown
with some going as far as to say that the powers to be won’t allow too tight of
a balance sheet because of higher food cost implications. Along those same lines one has to ask themselves
how much weight does the USDA put into future demand over present usage
pace?
As example presently I have seen reports the past couple of
days where ethanol margins are in the red “near record negative for modern
times”, domestic unleaded gas demand at a 10 year low, S Plains replacement cattle
crude margins at a negative $125 a head, and prompt chicken moved to the red
last week.
So if we take our two biggest users of corn; feed usage and
ethanol usage and we see that many of them lose money if they buy today will
economics allow them to keep their current pace. How will the USDA look at their numbers; the
present pace that says we should up our exports and ethanol usage or will the
lack of margin that eventually will curve demand cause the USDA to leave their numbers
unchanged or maybe if put in some cuts?
Another positive that has been talked about and reflected in
the trade estimates is the world balance sheets from SA crops getting smaller;
but it has also been reported for nearly a month now that weather has turned
much more positive. So in my opinion to
assume that we get more exports my look good on paper and should happen but I don’t
know that I am in the camp that our SA crops got smaller over the past 30 days;
not based on what I have read over the past 30 days. Now I would agree that the numbers we seen in
the Jan report left room for them to get smaller as they were not as small as
many thought; but I don’t know that weather really has caused a lot more damage
since the last report.
The wheat numbers; any way you shake it we still have a lot
of wheat in the world; and that is assuming we end up seeing a cut in the world
stocks as expected. The only thing the
USDA has shown me over the years is that it doesn’t always stick out numbers
that are expected. Sometimes they are
way off and the market gets it handed to them; sometimes the market and the
USDA numbers come in line and then they look for a new reason to trade, and
other times the opposite happens and we see numbers even more drastic the
market thought would happen. At the end
of the day and ahead of each report we will always be left with these unknowns
and for us in the grain industry this huge risk so we really have only one
logical rational smart business decision choice. Use good risk management in your marketing with
a diversified approach while look to protect against extreme price (profit or
lack thereof) swings.
If you need help with some risk management ahead of the report
feel free to give us a call. With a
decent basis maybe one should simply look at making some cash sales and re-owning
on paper if you are a bull.
Along those same lines don’t forget our weekly marketing meeting
that we have in Onida every Wed; including tomorrow the day before our next
report.
A couple of other things I am seeing:
ADM closed an ethanol plant in ND or laid plans to close it
in the next couple of months. (Permanently
close it)
Basis for grains feels a little top heavy; some ethanol
plants in Iowa dropped basis by 5-8 cents today and I have seen an uptick in
producer selling. Many comments about
wanting cash flow right around March 1st. Wheat really lacks export demand and that is
keeping a lid on basis for winter wheat and spring wheat. Locally most ethanol plants seem to have good
Feb-March coverage and basis for corn feels defensive overall; it doesn’t help
that they can’t lock in a margin in deferred slots. And overall it still feels like producers
still have way too much ownership (hence risk) for a rally to really make much
steam with end users losing money when they buy some of our grains.
The sunflower market has been in a free fall; but it is
starting to feel like the panic selling is near and end. Coverage also appears to be light so perhaps
if business picks up and producers get back into the field we have a chance to stabilize or bounce that
market over the next couple of months.
Please give us a call if there is anything we can do for
you.
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