Markets closed weaker for the grain markets today; despite
supportive outside markets, and decent to good export sales.
When everything was said and done corn was down 6-7 cents,
beans were off 6, KC wheat was down 5-6, MPLS off 2, CBOT wheat off 4, equities
bounced with the DOW up 85 points as the S & P got to it’s highest levels
since December of 2011, the dollar is near unchanged, crude made 4 month highs
up over a dollar.
Very disappointing is how I would characterize today’s price
action. For the first time in a long
time we had export sales hit what they need on a per week basis to hit USDA
estimate for all three of the major grains and we had a risk on type of outside
markets. The export sales helped our
markets push higher when they came out; but we couldn’t manage the
strength. Keep in mind that corn had 7-8
up days in a row before today; so our markets were a little overdone. But still it is disappointing anytime you see
good news and can’t trade higher.
Soybean sales were as high as they have been all year; yes the biggest
export sales week we have had all marketing year; so another disappointment
that we didn’t close firmer.
Looking deeper into the export sales and you do find info
that maybe helps explain the sell off.
First off the export numbers are for business done last week and even
though they where good it isn’t like the corn and wheat numbers where off of
the charts. The business was announced
last week so the sales good where not well above expectations. One other thing to look at is the fact that
last week was a big USDA report week; now we stress to producers to take risk
off the table ahead of major events like that so it only makes sense that buyers
or end users did the same thing.
The real negative for export sales has to be the HRW sales;
the SRW sales which would be CBOT wheat where great; but actual hard red winter
wheat like what is grown around here were still horrible only about 1/5 of what
we need on a per week basis to hit present USDA export projections. So the one that we really need the demand for
still is missing the demand.
Speaking of demand yesterdays news mentioned a couple of ethanol
plants in NE shutting down until market conditions improved. Yesterday’s ethanol production numbers were
also reported to be the lowest since 2010.
So I think the past day or two we have seen a little shift in the
headlines from a tight balance sheet that might get tighter to focus on the
rather poor margins for the ethanol plants.
One commentary that I listened to today said that as many as ½ of Iowa’s
41 ethanol plants could be idol by July.
That sounds like a little too much demand getting curbed.
One positive I had for the ethanol industry is the fact that
today I had an ethanol plant looking for a little April – May corn. I don’t think he cared for the levels I would
be a seller at but at least he is looking.
We also know from history that if they run most plants run 100% because
they just have way to many issues if they try and run ½ speed.
Bottom line is we really need to watch what the ethanol
plants do or don’t do and how the headlines effect what the funds decide to
do. I think presently one could argue
that ethanol usage pegged by the USDA to be fairly accurate; with potential to
use more or curb way too much should some start shutting down.
Last thing on corn to watch is what the ethanol markets due
to basis. Meaning that corn basis has
both tremendous upside but also tremendous downside risk. We are simply seeing lots of corn usage
shifts happening. As plenty of corn is
not going to the same end user destinations as it has in the past and that
comes from the regions that had poor crops as well as the regions that had
better then expected or better than the past couple years crops. It should and likely will cause huge swings
in basis as buyers go into a different area to pull corn causing that area to
see basis on fire; but then coverage happens or demand slows and that could cause
basis to go under heavy pressure.
The wheat market to me feels heavy; yet wheat also feels
like it has the most potential. I just
don’t think that the wheat market can realize much if any potential until
demand hits us. Export demand for HRW in
particular; that is the wheat that we have the supply issue with for next year
and that is the wheat that we need to sell over the next several months if we
want to see a bullish wheat market. (In
my opinion)
Exports are far more important for wheat then they are for
corn. We export 10-20% or less of our
corn in a given year; while it is some place closer to 30-60% getting
exported. So fundamentally exports are
much more important for wheat and that means that export headlines or lack
there of probably have even more effect on what the funds do.
Technically our markets look much better than they did just
a week or so ago. But we are also
overdone in some markets and we have neared resistance levels. The next few days should help us determine if
we are still in markets where the rallies should be sold or if we are turning
the stage to markets where the funds and end users will buy the dips.
I believe INFORMA will update new crop acre numbers
tomorrow; so watch out for that. Most
likely they will not be printing very bullish numbers; but rather them and most
of the market will start off talking big acres with big yields. Realistic or not.
Please give us a call if there is anything we can do for
you.
Jeremey Frost
Grain Merchandiser
Midwest Cooperatives
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