Closing Grain Market Comments 6-11-2013 - USDA report preview

Markets closed firmer today ahead of the USDA report which will be out at 11 central time tomorrow Wednesday June 12^th.  Spreads firming a little bit today was of note; main reason seemed to be lack of producer movement along with decent demand for the old crop.  We did see July soybean meal have a contract high close; while July soybeans had the highest close this year.  Bottom line is old crop soybean and soybean meal charts look fairly decent and we haven’t exactly solved the protein issue for old crop beans despite the South America crop now basically all in the bin.

When things  closed out today July soybeans ended up 29 cents a bushel, November soybeans were up 8 cents a bushel, July corn was up 10, December corn was higher by a nickel, KC wheat was 4 higher, MPLS July was 4 higher, MPLS September was up 1 ½ a bushel, the US dollar June Futures are off 580 points at 81.07, gold closed down about 9.20 cents an ounce, crude off 85 cents a barrel, and the stock market was down 116 points on the DOW futures.

Not a ton of news out; more of a wait and see what the USDA report will tell us.

Old crop strength could have been some unwinding of spread put on recently because of the weather scare for new crop or it might have just been more range bound technical trade in July corn along with the fact that it is simply hard to buy tons of grain from the producer right now.  Guys are either busy in the fields or look out the window and can’t get to the fields.  Either way the producer isn’t very interested and buyers still need product; so thus we see the spreads firm up a little.  The old crop corn and bean balance sheets are more than tight so fireworks any given day on the July contracts shouldn’t be a major surprise. 

As producers and hedgers we need to have some caution with the old crop tightness; because of the huge inverses we have out there.  The cash inverse we have posted locally is 1.66 a bushel on corn; meaning our nearby bid is 1.66 more than our new crop bid.  As hedgers and producers we don’t want to give that inverse a way.  If everything is unchanged it is like paying 50 cents a month in storage charges.  I don’t know anyone that would go for that if they brought the grain into an elevator.

Bottom line is that sometime in the next few months a guy should have old crop corn and soybeans sold; if you want to own you do it via paper or a basis contract against a deferred month.  Now that doesn’t mean today; because as tight as things are we could still see some huge fireworks on old crop basis.  In my opinion it will be a market that heats up sometime and then a few days later has a crash for the ages.  So the last couple of guys will potentially get rewarded big time via a great basis level; but the guy that is late just by an hour, day, or week could end up just at new crop values.  Very thin line and costly game. …………This will be just another example of risk-reward in grain marketing.

Heading into the report tomorrow my bias is we see a neutral to bearish report for new crop.  While old crop is neutral to bullish; but that doesn’t mean I look for old crop to gain tons on new crop.  I think the funds own a little too much old crop for it to play out that way; I think spreads could weaken even if we get a neutral old crop report and a bearish new crop report.

Here is latest estimates; via the Van Trump Report.

US Ending Stocks 2012/13
	June #	May USDA #	Avg Guess	Range of Guesses
Corn	???	0.759	0.759	0.684 - 0.919
Soybeans	???	0.125	0.121	0.080 - 0.140
Wheat	???	0.731	0.733	0.715 - 0.751
US Ending Stocks 2013/14
	June #	May USDA #	Avg Guess	Range of Guesses
Corn	???	2.004	1.795	1.175 - 2.200
Soybeans	???	0.265	0.268	0.185 - 0.344
Wheat	???	0.670	0.640	0.501 - 0.713
Global Ending Stocks 2012/13
	June #	May USDA #	Avg Guess	Range of Guesses
Corn	???	125.430	125.975	124.500 - 128.200
Soybeans	???	62.460	62.105	60.500 - 63.000
Wheat	???	180.170	180.395	179.800 - 181.395

Global Ending Stocks 2013/14
	June #	May USDA #	Avg Guess	Range of Guesses
Corn	???	154.630	149.571	141.510 - 155.200
Soybeans	???	74.960	73.512	68.200 - 76.000
Wheat	???	186.380	185.144	179.800 - 188.500
US Wheat Production
	June #	May USDA #	Avg Guess	Range of Guesses
All Wheat	???	2.057	2.034	1.872 - 2.109
All Winter	???	1.486	1.467	1.401 - 1.523
Hard Red Winter	???	0.768	0.752	0.676 - 0.815
Soft Red Winter	???	0.501	0.505	0.492 - 0.517
White Winter	???	0.217	0.210	0.200 - 0.217

My bias is that the USDA either doesn’t acknowledge the supply concerns that the market things or that if they do acknowledge them they equally offset the projected demand.  My reasoning is that the demand increase the USDA had in the last month came with lower average farm prices.  Without lower prices I don’t think they can jump the gun that demand increases just like turning on a light switch.  I think the market will have a job to do to increase demand.

Now my bias is also for the price action to only trade the report for a few minutes.  I think that most in the market realize that the USDA can be slow to the game and they don’t always update the production numbers that often this early in the season.  I don’t think that the market takes tons of risk premium out of the market should the USDA give us a negative report.  They probably wait for more confirmation from the stocks and acre report and see how weather develops over the next few weeks.  Will we get all of the soybeans in?  Will the corn conditions improve or decline as we go forward? 

Can we see warm and wet in the next few weeks/months?  If so could the crop get bigger?  If we decide to get hot while pollination hits how much yield loss potential is out there?  ETC………..lots of unknown factors and unknown agronomic factors that should keep some support in our market until we have more cards dealt.  As more cards get deal and we go forward we need to realize that IF the USDA numbers of 1.5 to 2.0 billion bushel corn carryout are true; the job of the market won’t be to slow demand; the job of the market will be to increase demand.  The fastest and easiest way to increase demand is via lower prices. 

Bottom line heading into the report tomorrow be comfortable.  It doesn’t matter if my opinion or bias is one looking for a quiet report.  Be comfortable in your marketing and your position heading into the report.  We never really know when we could see another report similar to the March report that took over a buck out in just a few days.

Other news out there include ethanol numbers; which will be out tomorrow morning.  Friday we will have crush numbers out and Thursday we will have export sales out.  We need to watch the trend on these; not just the numbers.  Is the trend we are creating or losing more demand?

Still seems to be some major concern for North Dakota acres; lots of talk of prevent plant.  Sunflower buyers are looking and the market continues to wonder how many spring wheat acres will be lost.

I do have to question the spring wheat demand versus the supply; because there seems to tons of old crop spring wheat in the bins.  Plus we seen the MPLS spot floor roll its bids today to the September futures.  When a market rolls the bids early in an inverted market it isn’t always the best demand sign as they are trying to take that inverse away from the market.  If demand was super good then the buyers would be bidding against each other and things wouldn’t roll early.

At the end of the day wheat has a couple major stories in the US; the horrible HRW crop that many have and the lost ND spring wheat acres.  But those are supply issues; not demand issues.  The HRW crop issues are old news too; what the wheat market really needs is some good demand news.

Please give us a call if there is anything we can do for you.

Thanks

USDA Report Recap - Market Comments

Below is a USDA report recap

US Ending Stocks 2013
	April #	March USDA #	Avg Guess	Range of Guesses
Corn	0.757	0.632	0.824	0.625 - 0.925
Soybeans	0.125	0.125	0.138	0.107 - 0.160
Wheat	0.731	0.716	0.731	0.700 - 0.755
World Ending Stocks 2012/13
	April #	March USDA #	Avg Guess	Range of Guesses
Corn	125.3	117.48	120.2	108.13 - 125.00
Soybeans	62.6	60.21	60.1	56.76 - 61.00
Wheat	182.3	178.23	178.6	176.90 - 180.00
South American Production Numbers
	April #	March USDA #	Avg Guess	Range of Guesses
Brazil Corn	74.0	72.5	72.90	69.10 - 76.40
Argentine Corn	26.5	26.5	25.586	24.0 - 26.50
Brazil Soy	83.5	83.5	82.543	81.0 - 83.60
Argentine Soy	51.5	51.5	50.502	49.00 - 52.00

It looked like the markets traded the US corn carryout numbers right out of the gates; but then as they got further into the report seen the world carryout numbers and things sold off.

Overall one probably considers the report a non-event; friendly US carryout versus estimates; but negative on the world carryout side of things.  At 12:30 we have corn near unchanged but spreads very firm, beans are off 3-4 cents, and wheat is down 15-17 cents.  Corn and beans are very close to where they were before the report came out and wheat isn’t much worse but it is off a few pennies.

Some talk is out there that the weakness in wheat is just as much from a buy the rumor sell the fact for the freeze concerns as well as the fact that we still have yet to see an USDA announcement for the sale of SRW wheat that was rumored to have happened last week. 

Overall the report tells me that weather should become more important and the fact that our balance sheets are tighter in the US then the trade had guessed should also be supportive; it just isn’t supportive today.  Think about it this way; the first thoughts after the March stocks report were that carryout would be 850 million bushels to a billion bushels for US corn.  But instead the numbers came in at only 757 million bushels; a 125 million bushel increase; only about 1/3 of the 400 million bushels that the USDA had found in the stocks report. 

I think if it wasn’t for the negative world balance sheet numbers that we could easily be limit up on corn; after all we did shoot up about 20 cents right after the initial release of the update USDA Supply and Demand report.

The big negative on the report is the increased world carry out numbers as seen above.  But keep in mind that most of that is coming from China and over the last couple weeks we have seen plenty of talk of China looking to buy wheat and new crop corn.  Some of my sources indicate that much of the grain stored in China has major quality concerns and might not be something that can be used.  So if our increased supply isn’t used able supply how bearish is it?

Watch to see how we close today as that will be important for the charts.  The other thing I would look for is wheat to move back to a follower; it had been leading the markets but today’s report probably says wheat should now follow corn again.  That doesn’t mean that wheat can trade on its own; it just means that its own story probably won’t be a headline like it has been.  After all the actual frost damage probably won’t be known for some time.

With the report behind US our marketing plans/ideas should start to focus more on weather and demand.  We dodged a bullet today and hopefully that gives us a chance to make some higher sales at better levels; but we also need to keep in mind that long term supply looks to increase and today’s report showed us that global demand might be a little softer too.  So we should realize that new crop corn and prices in general will have plenty of risk should weather not be an issue.

I haven’t seen much for updated basis values; I have calls in but no real response.  I would think that producer movement remains slow and that basis should bounce for corn; but it could be a little hit and miss as there are just so many areas that have an either extreme surplus or defeincey of corn.  Keep in mind that most ethanol plants are plugged for the next couple of months and the spread inverting more should also draw out more supply from the commercials as they won’t want to carryout corn in an inverted marketed.

Wheat basis is mixed; but I think it should have a downward bias.  Moisture in our area might help a little more old crop move; guys will feel a little better and might not hold as much if we wouldn’t have got this snow storm.

Please give us a call if there is anything we can do for you.

What did Friday's report do for the price out look for grains?

What did Friday's USDA report do for the price outlook for the grains?

My opinion is that we really opened some doors to possibly much higher prices in the future; but before one gets too bullish we still need to have a couple things happen.

First off we can't see a bearish report on Oct 11th; perhaps something that explains the bullish report we seen on Friday when the USDA came in well below trade estimates for both corn and wheat stocks.  From what I have read the most ever below a trade estimate.

So I think our first risk will be some weird Oct Supply and Demand report that explains a little what happened in the last quarter.  Perhaps there will be no explanation and in that case we still have some risk.  The risk being yields come in much bigger then expected or demand is cut more then expected.  I could see a little bounce in yields just from human nature of over reacting and the fact that it seems like yields are slightly better then expected; but are they better or worse then what the USDA expected?

If we can get by the Oct 11th USDA hurdle; or next or perhaps day to day hurdle will be the outside markets and global economic picture that can have just a huge influence on what is probably the biggest fundamental factor out there.  Money flow via the funds; we don't need to give them a reason to step aside and put money under a mattress so to speak.

Next and probably what most important is going to be demand.  Stages are set for a very tight starting spot for corn and the wheat feeding the last quarter was just huge and we all know the soybean demand situation that has us just a few short weeks into the current marketing year at nearly 80% of goal.

So if demand isn't curbed, and if it can stay strong and pick up some speed (especially needed for wheat) then the upside potential was really opened back up on Friday.

Where could we go?  Hard to say as I mention above there are some hurdles that need to be jumped first; but if we can get past them the area we could go is that area where demand slips or ECON 101 jumps in and fixes our problem.

As for marketing we need to realize that the market will fix it self and the stuff I am referring too isn't new news; it's old and potentially built into the present price.  So as always use a game plan that leaves you comfortable and spreads out and protects your risk should one of the unknown black swans come up at any time.  Bottom line is I would be playing things from the long side but at the end of the day using risk management that is taking risk off the table at good profitable levels is just what a person is suppose to do; with the present outlook should one be a little slower in making sales.......probably..........but don't do nothing either; be pro-active and manage risk.  Keep in mind that many that buy corn as example can't buy it and make money; don't still have nothing sold or protected should we see producers - end users profit roles reverse.

USDA report recap - market comments 9-12-2012

This a.m. we had a USDA report that looks to be another non-event as the USDA made very little changes to our balance sheets.

For the corn balance sheets we seen old crop ending stocks come in a little higher then estimated as they where pegged at 1.181 million bushels which was about 150 million bushels above the estimate and by far the most bearish thing seen on the report. 

New crop corn balance sheet was pegged at 733 million bushels; an increase of 83 million from last month and also over 100 million more then the average trade estimate.  Production came in at 10.727 nearly unchanged with yield only drop .6 bushel per acre while harvested acres where left unchanged.  Overall I don’t think the market will believe this production number; most think the harvested acres are well under the 87.4 that the USDA is using.  On the demand side of things the USDA cut exports by 50 million bushels but increased feed usage by 75 million bushels.  Add in the increased starting spot and they pegged our carryout at 733 million bushels.  Bottom line is there is and will be debate on the crop size………..it probably won’t be known for sure until the January report and the market needs to keep in mind the huge demand cuts being forecasted.  We can’t afford a price break that doesn’t allow demand to be curbed or we have a legitamite argue that we run out of corn sometime next year.  Does that mean we have to go up today or anytime soon.  No especially considering that our supply nearby is going to be heavy..........maybe not like a normal year but still we will have around 10 billion bushels or so getting harvested in the next month or so. 

World corn carryout was also a rather non-event as the USDA left carryout near unchanged at 123.95 mmt versus 123.33 last month.  No major changes other then the old crop US carryout that spilled over into the new crop balance sheets as well as the world balance sheets.

Wheat numbers where unchanged with carryout at 698 million bushels.  The world balance sheet also seen very little changes especially considering some of the other estimates that have been out for production.  Perhaps this is still something to come later too?  Case in point the USDA left Austrailan production at 26 mmt; while just in the past few days we have seen estimates from 20-22.5 mmt.

The bean carryout for old crop was lowered to 130 million bushels; but new crop carryout was left unchanged at 115 million bushels.  Yield was lowered by .8 bushels per acre and production dropped by about 60 million bushels but ending carryout was unchanged.  To offset the lower starting spot and less production they lowered exports by 55 million bushels and cut the crush number down by 15 million bushels.   In my opinion the market is really going to need to do everything possible to curb demand.  Exports as example are way ahead of last year at this time yet the USDA is projecting nearly a 300 million bushel cut.

Here is a recap of report.

September USDA Supply & Demand Worksheet 

2012/2013 US Corn & Soybean Crop Estimates
	USDA September	Avg. Trade Guess	Avg. Trade Range	USDA August
Corn Production	10.727	10.400	9.860 - 10.780	10.779
Harvested Area	87.400	86.173	83.000 - 87.400	87.400
Corn Yield	122.8	120.600	117.600 - 124.000	123.400
Soy Production	2.634	2.650	2.400 - 2.739	2.692
Harvested Area	74.60	74.447	73.300 - 74.745	74.600
Soybean Yield	35.3	35.600	33.500 - 36.700	36.100

2011/2012 Ending Stocks Estimate (billions of bushels)
	USDA September	Avg. Trade Guess	Avg. Trade Range	USDA August
Corn	1.181	1.015	0.800 - 1.175	1.021
Soybeans	0.130	0.135	0.100 - 0.170	0.145

2012/2013 Ending Stocks Estimate (billions of bushels)
	USDA September	Avg. Trade Guess	Avg. Trade Range	USDA August
Corn	0.733	0.600	0.475 - 0.700	0.650
Soybeans	0.115	0.107	0.087 - 0.117	0.115
Wheat	0.698	0.709	0.670 - 0.795	0.698

2011/2012 Global Ending Stock Numbers
	USDA September	Avg. Trade Guess	Avg. Trade Range	USDA August
Corn	139.60	136.50	134.50 - 139.45	135.97
Soybeans	53.65	51.60	51.00 - 52.35	51.94
Wheat	198.64	197.25	196.00 - 197.65	197.59

2012/2013 Global Ending Stock Numbers
	USDA September	Avg. Trade Guess	Avg. Trade Range	USDA August
Corn	123.95	121.02	118.75 - 123.00	123.33
Soybeans	53.10	51.90	48.80 - 53.00	55.38
Wheat	176.71	174.50	172.00 - 178.00	177.17

Bottom line is report came off neutral to bullish beans, neutral wheat, and neutral to bearish corn.  Now is a 733 million bushel corn carryout bearish……….no.  But it isn’t bullish considering what the market was looking for.  At the end of the day prices need to maintain levels that allows the USDA demand cuts to be seen.  Price breaks that allow demand to stay at a high pace potentially open the door to much higher prices later.

For risk management purposes and marketing purposes we need to keep in mind possible black swan’s such as ethanol mandate waiver or a ban on exports……etc.  Basically something unknown at this time that catches the market off guard.  We also have to watch out for the fact that everyone is still bullish and today’s report probably doesn’t change that.   Top’s  in markets are made when everyone is bullish or no one is expecting the markets to break.  That alone at good prices should promote spreading out some risk.

We also need to watch for signs of demand slipping or picking up.  If we don’t see wheat demand pick up with the US getting some exports from the smaller crops in the world then we have plenty of wheat.  If demand doesn’t slow down for beans what could happened to prices if the SA crop is closer to this past year’s versus the big projection? 

As for the price action today look for it to remain choppy; closing positive would be good and help the charts out a little bit.  As of 8:45 we have corn off 7 cents which is about 12 off of it’s lows, KC wheat is down a penny about 13 off of it’s lows, MPLS wheat is unchanged up a dime from it’s lows, and beans are up 25 cents nearly 36 off of their lows.

A couple other announcements are DP for row crops.  For corn and milo we are giving free DP until the end of the year; 20 cent charge with 4 cents a month after.  Sunflowers are 30 days free.

We also started sending out mid day updates on the markets.  This is a voice recording around noon everyday with an update on what the markets are doing and why.  If you don’t receive please give us a call and we can get you added.

Thanks