Markets closed mixed today in a rather choppy trading
session for the grains.
When things where all said and done corn was off 5 cents,
soybeans were up 7 cents, KC wheat was off a dime, MPLS was down 5 cents, CBOT
wheat was down 5 cents, equities bounced with the DOW up 99 points, crude was
up 50 cents, the dollar is near unchanged, and gold is off 3.00 an ounce.
A disappointing day for the grain markets with a lack of
headlines. More so today’s weakness
seemed to be follow threw selling from yesterdays turn around that the grains
had. We also seen a slight improvement
in the South American weather forecasts; but it would be hard to blame that for
the weakness in corn when we saw beans able to close higher.
The grain markets did do one thing positive and that was
close about 4-7 cents off of their lows for corn and the three wheat contracts.
There is some precip for some HRW areas in the forecast that
along with the weak HRW demand didn’t help out the wheat markets. Canada reported lower than expected stocks
this a.m. by about 1 MMT less then trade average; but that wasn’t enough for
wheat to see much strength today. One
commentary that I listened mentioned the fact that India has a huge excess
amount of wheat in stocks and much of it might come to the export market. It wasn’t too long ago that they imported
wheat; but now they seem to be a competitor.
Basis for the spot feels defensive for both HRW and spring
wheat; as mills seem to have plenty of product as the railroad have caught back
up the past few days. To arrive basis
for the planting months still feels firm; but nearby has a weaker tone as
supply is moving.
Corn basis feels firmer as producer selling slowed down on
the price break today. But I also had a
local ethanol plant tell me he now has coverage out until the end of April. I have to wonder how the regional effects of
big crops/small crops is playing out. I
know that it has caused a lot of shifts to were our final destination is on
corn. The past few years a lot of corn
out of our area went up toward ethanol plants in the northern part of the state
because their corn crops were smaller; this year hardly any corn from our area
is going that way. It is all going either
east or south if on trucks; or going on rail into some feed markets.
Bottom line is we should look for corn basis to be choppy
and rather volatile as we go forward.
One other thing that will add to the volatility will be the spread
between old crop and new crop. As
example if you wanted to lock in basis for August or after wheat harvest
delivery of old crop corn you could lock in something around 1.20-1.30 over the
December futures. So what likely happens
is that we see some super strong basis sometime this summer but we quickly or
at some time fall apart into new crop basis levels which likely trade in the
-50 to -80 under range.
This presents some risk and potential opportunity. As example if you think we will have another
drought card show up this year perhaps the play is to lock in basis against the
Sept or December futures on old crop corn.
Because my logic would say that a drought doesn’t do anything for old
crop values; but it certainly could be a reason for the funds to decide to get
long new crop corn. Now were or when to
lock in basis might be another question because we are extremely tight old
crop; so perhaps that means one waits and looks for 1.50 or 2.00 over the December
board???
At the end of the day the one thing one doesn’t want to do
is give up the old crop new crop inverse.
So that means that one needs to either lock in basis or get stuff sold
sometime before that inverse goes away.
As long as the inverse is around it is a good sign of more demand then
supply.
The other thing that probably added a little weakness to our
markets today is Friday’s report. The
USDA will have an updated supply and demand report out on Friday. Below are the estimates
The U.S. Department of Agriculture is scheduled to
release its estimates on Feb. 8 at 12 p.m. in Washington.
*T
Crop
Production
Previous
USDA Estimates
Average
Range
2013 2012
ARGENTINA
Corn
26.4 24.0-28.0
28.0 21.0
Soybeans
52.9 50.5-55.7
54.0 41.0
BRAZIL
Corn
71.3
69.8-73.5 71.0 73.0
Soybeans
82.7 81.0-84.0
82.5 66.5
Carryout
forecasts…
Figures in the following tables are in millions of
bushels.
2013 U.S. Inventory Forecasts
Analysts Estimates
Average
Range Previous USDA
2013 2012
Corn
616
502-697 602 988
Soybeans
130
103-140 135 169
Wheat
717
512-783 716 743
I do think there should be some risk that the USDA decides
to be a little aggressive on the wheat exports and corn demand (ethanol and
exports) because they have simply been horrible. Perhaps they use a wait and see approach; but
I think the risk has to be to the side of the USDA decreasing demand. When we look longer out we also have to keep
in the back of our mind that many are talking about 95-100 million acres of
corn; with a yield of 140-170 that gives us potential production of 12.5-13
billion bushels to maybe as much as 16.5-17 billion bushels.
If we are anywhere in that above production range we need to
find a lot of demand year over year as this present year we are only projected
to use about 11.1 billion bushels and that number could be falling with the
slow ethanol production and lack of exports.
What is scarier is that history had never seen us drop the usage like we
did this past year; but now potentially we have to up usage more than ever or
risk having a huge carryout. I guess we
have been in the process of seeing how quickly we could curb demand or slow
down demand over the past several months.
The very near future could be us seeing how quickly we can do the
opposite.
I don’t want to sound to bearish for new crop prices; but I do
want guys to realize the type of risk that we potentially have. So the focus shouldn’t be to fear sell; but
rather to realize that one might want to take advantage of any future rallies
we may have because as things stand today the fundamental picture for prices
8-12 months from now isn’t for higher prices.
Sure some things could and probably will happen that will take the
lowest possible out come out; such as drought persists, or strong outside markets
that cause inflation talk and money flow into commodities, or any other black
swan event such as import tax on Brazil ethanol or something else that could
really give the ethanol industry a boost.
Don’t forget we will have our weekly MWC Marketing Meeting
in Onida tomorrow Wednesday at 3:30
Thanks
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