Markets closed mixed to weaker today in choppy market. The main highlight was the very ugly outside
markets; but we also seen the wheat market chop around and trade positive for a
little bit of the session.
When things closed July corn was down 9 cents, December corn
was down 10 cents a bushel, KC wheat was down 3, MPLS wheat was down 1, CBOT
wheat was down 7 cents, July soybeans failed to close above 15.00 for the first
time this month down 26 cents, November soybeans were also down 26 cents, the
DOW closed down 354 points which was about 100 more weaker then it was when the
grain markets closed, the US dollar was firm up 350 points on the cash index at
81.77, Gold was down 90 bucks an ounce, and crude was down about 3 bucks a barrel.
Gold down 90 bucks an ounce is about $9,000 a contract; that
would be nearly 2 bucks a bushel in the grain markets should a regular contract
lose 9 grand. One does have to wonder
with the ugly outside margin calls that some will have if this has more
spillover effect on selling or squaring up.
Where would the selling take place ……..probably soybeans and corn as
that is where most of the length is at.
Maybe a little MPLS wheat as funds are long that as well; but the funds
are short KC and massively short CBOT wheat so perhaps margin calls help lead
to more short covering in the wheat markets????
The weather card was also mentioned today as a bearish
item. But to me I didn’t see much in the
forecast that had changed from yesterday.
As I have mentioned before weather just seems to be volatile right now;
some areas need some heat for development; while other areas could use heat and
moisture.
We did have export sales out this a.m.; but nothing major to
report there. Good to ok for wheat, good
for new crop soybean meal, ok for old crop corn, bad for new crop corn, and poor
for both old and new crop soybeans.
Nothing major reverses the expectations and nothing that changes the
current fundamental trend. That trend
being we need to find more demand.
Outside market pressure started via the Fed yesterday; but really
turned into herd selling. Much like
yesterday the grain market seemed to see just heard buying. There was some talk about some interest rates
in China being increased at the Bank of China; from what I read the short term
rates (one week lending rates) increased from 7 to 11% in the last day. The PMI number in China also came back disappointing;
leading to questions on the overall strength of the world economies and
question market if a setback is on the horizon.
Morgan Stanley is cutting jobs in its commodity business; because
of a lack of profits. Helps show that
the industry we are in isn’t exactly easy.
Makes one wonder if at some point the funds will give up playing this
game??? Historically to me it seems like
the funds really get in late to the game; typically we have made our tops when
they are the longest and we make our bottoms when they are the shortest.
Not much else out there today; we do have option expiration
tomorrow. I would think our July
contracts get very volatile over the next few weeks; basis is just too tight in
some areas.
The big thing the market is waiting for is next week’s USDA
updated stock and acre report. Market
will be looking for bullish stock numbers and a mixed bag on the acre
side. Most think that we have decreased
acres via the weather because of too much moisture in many areas. Mainly Iowa and North Dakota; but most also
think that because the USDA report is a survey in early June that the USDA will
end up with a re-survey. So how accurate
will next week’s numbers be? Will they
be overstated because producers had intentions to plant but moisture didn’t
allow? Or will they be understated
because it is a survey and the outlook of getting planted was rather bleak a
few weeks ago?? Bottom line is it will be
hard to determine how the market will take the numbers and it is also going to
be hard to outguess what logic the USDA will use when they print the
numbers. How many little asterisk
markets will be on the report??
The other question on next week’s report will be the stock
number. Will the USDA find 200-500
million bushels again of old crop corn? Is
there enough corn out there to get us to new crop? Things could get very interesting over the
next couple of weeks. So for marketing
make sure you are comfortable.
In my honest opinion old crop corn has the potential over
well over a dollar gain; but also has to have at least that much risk and I am
talking simply price today versus where the price might be in 30 days. I could paint a picture where we are a buck
higher; but I could also paint a picture where we are a buck lower. The price action will primarily hinge on the
USDA report; but weather, how the outside markets react (tough to paint a good
picture if the DOW continues to lose 500 plus points every couple of days), and
how the ethanol situation shakes out. I
really believe we have at least a 2.00 potential range depending on the above
factors as well as other unknown black swan events. I think basis might be as volatile or maybe
even more; no real resolve to the ethanol situation as of yet along with a
possible late harvest should keep old crop corn basis volatile. I know in trying to sell corn that the bid
ask spread has become wider then wide; and the futures spreads are what is
making it super volatile.
I don’t think new crop corn will be as volatile as the old
crop; but we have some major risks there as well. The risks and how it shakes out will be determined
mainly by weather; but how many acres we get along with the USDA report next
week will help determine the fundamental direction. How quick can demand bounce should we have a
big crop? I think the possibility bottom
falling out of new crop corn should be low until we get some of the unknowns
answered. First unknown to be answered
potentially will be next week. As we do
a better job of defining our production and that production number happens to
continue to be big we open the door to the bottom falling out or major downside
price risk.
Bottom line is over the next several weeks we will have more
questions answered. How the USDA and
Mother Nature decide to answer those questions will really dictate our grain
price action as we go forward. With all
of the unknowns we can create multiple price action pictures. So in a grain marketing plan we want to be
pro-active enough to be comfortable no matter what outcome ends up
happening. We want to lean that plan
towards our own personal bias for things like production, weather, and tie it
into our goals and risk tolerance. But
we don’t want to get so stuck on thinking that the outcome has to shake out
exactly how we think it could or should.
We need to realize the other side of the coin and risks and rewards that
associate with that possible outcome.
Bottom line is in our industry we need to try to make good risk management
business decisions and take some of the emotion out of the marketing plan.
About the only other thing I see out there today is the cash
market movements. The birdseed market
felt slow today; crush sunflowers down 25 cents probably didn’t help the
birdseed demand. Winter wheat basis
remains firm and I have had mills looking for offers. I think one really should consider locking in
basis on a decent portion of old crop wheat that isn’t sold. Corn basis as mentioned above is more than
volatile; but probably not as volatile as the millet price situation. The millet market today I can’t tell within
10 cents or 5 bucks a bushel. I jokingly
told one today someplace between 30 cents a pound to 60 cents a pound. If someone wants it the top end or higher
might trade. If not I am not sure what
level I can sell it at.
Please give us a call if there is anything we can do for
you.
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