Closing Grain Market Comments - Bottom in or has the free fall just started?
Markets closed mixed today in a tale of two stories. The
tight old crop situation for some of the row crops and the weather being the
two stories out there.
When everything was done corn was down 3 cents, KC wheat was
down 3 cents, MPLS wheat was lower by 4 cents, August soybeans were up 30
cents, November soybeans were up 15 cents, crude was down a buck, the DOW was about
unchanged up 2 points, the Dollar was under some pressure with the cash index
at 82.216, and gold was up 42 bucks an ounce.
August soybeans were the bright spot for our markets and
they helped pull some of the other markets well off of their lows. The old crop soybean situation is just
extremely tight. No other way to put
it. Now trading the old crop beans is
tough because basis seems to move 20 cents or more a day. I did talk to an end user at one point today
and he mentioned how bids were getting weaker 20 cents a day; yet he also
really seemed to want an offer so that the beans I was working on didn’t go to
another spot.
The bottom line for old crop grains like soybeans, corn,
milo, and even millet is things are thin.
If an end users needed the product they have to pay up. If they don’t it is tough to move things. No
offer is unreasonable; yet at any time all the offers could be way too high. Just a very high stakes poker game with many
components. The end users need to have
enough so they don’t run out; but they also don’t want to have any extra once
prices become cheaper. When will prices
be cheaper? Sometime when they are
covered or once new crop supply starting hitting them. Bottom line is the old crop situation for
some of these grains will remain explosive and volatile with lots of head games. We might see basis bids drop 20-50 cents in a
couple days only see it bounce as much or more should the buyers actually need
something.
As for the weather it is really debatable. But the headline that the funds seem to be
trading is that we have cool weather during pollination; with many areas also
getting moisture to go along with cool weather.
Don’t get me wrong plenty of areas have issues and have missed moisture
or maybe even got too much. But as a
whole the headline is a much bigger crop then a year ago for corn. The question many are asking is our corn crop
this year only 33 bushels more than a year ago.
I guess we really won’t know that for some time and as far as I am
concerned we are now just enter the phase when we should start guessing the
crop size. The real estimates shouldn’t
start until about now or maybe not even until the Aug crop report.
As for the bean crop many are talking the opposite; talking
that the bean yield the USDA has is too big.
That the bean production number should come down. Same thing here I really thing we are jumping
the gun even guessing at the bean crop size this early in the game.
Elsewhere we did have export shipments this a.m.; overall ok
to good for wheat at 23.1 million bushels; which is more than the 19.7 that we
need on a per week basis to hit current USDA estimate. The corn and beans shipments were light of
what we need on a per week basis; beans came in at 2.8 million bushels and corn
came in a 8.9 million bushels.
The other big news was this afternoon was crop
conditions.
Here is CHS Hedging link with recap.
I didn’t see any major surprises; we had corn conditions
drop 3% in the G/E slot. Very much as
expected but a drop in conditions nevertheless.
Corn silking came in at 43% versus the average of 56%.
Spring wheat conditions dropped 2% and soybean conditions
dropped 1%. Pod setting was at 8%
compared to the average of 19%.
As mentioned I don’t see any major surprises in the
condition update. I think weather will
be more important than this afternoons crop condition report; and those
forecasts can change with little notice.
The North Dakota Wheat Quality Council tour is this week, with
field observations beginning tomorrow. CHS Hedging will be reporting from the
tour via Twitter at @hedgeit and @hedgeit_jhof
The thing
that our area will want to watch is what type of protein North Dakota will have;
not sure if they will have any estimates and really it is probably going to be
determined over the next 30 days. Right
now it looks like ND doesn’t have much stress.
So when I guy that has high protein winter wheat or high pro new crop
spring wheat asks me if he should bring it in and sell it or take it to his
bins and store it my response is typically.
“Probably store it and hope ND doesn’t have any pro; but also realize
that your flat price risk probably comes from corn and soybeans as I don’t
think we have 8.00 wheat if we happen to have 3.50-4.00 corn.” I just don’t see that happening.
So the
bottom line for wheat and protein is that yes it might make sense to gamble and
store some hoping to get paid another 10-50 cents or more for your
protein. But realize that by trying to
gain 50 cents for your protein you might be risking a buck or more in flat
price. It doesn’t do any good to store
wheat and get paid 50 cents more for protein if you take a buck less in the
base price.
I don’t
mean to say that wheat’s going down either; more so I think one needs to realize
where the risk lies. Wheat in my opinion
is close to fair value and maybe even fundamentally undervalued. But I also don’t think that wheat can rally
by itself. It needs corn and beans to be
at the very least somewhat stable in price.
As for
the price of corn or beans I think we are entering unknown territory. I believe that the corn crop ends up someplace
between 13.5-14.5 billion bushels; based on current weather forecasts. If that is the case I really struggle to try
and determine what they funds might do and what is fair value. I look at crude oil and think well maybe corn
right here is more than fair; heck maybe corn is cheap.
I look at
China’s demand and think that maybe all of the grains are cheap at these
levels. But then I look at possible
record production coming off of a year that we had to curb demand and I wonder
how can prices do anything other than see pressure.
The
bottom line for corn and the rest of the crops the likely follow at least a
little bit is we are dealing with a situation that we have never had before in
history. We don’t know how short the
funds might go; the only thing we can do is look for other clues and practice risk
management that helps one stay profitable and comfortable. By nature it shouldn’t be easy.
One thing
that they say we need to make tops or bottoms is everyone leaning on one side
of the market. I don’t know that clue
has been met; yes we have the funds record short; but have the farmers sold
enough new crop corn for us to put in a bottom?
Have producers really made any new crop fear sales to speak of???
I hope
that over the next few months and years we can find some sort of medium level
that helps us build demand yet is profitable for producers. I am fearfully that we keep doing what we have
always done. That is overdo market
moves; both to the upside and to the downside.
Please
give us a call if there is anything we can do for you.
Thanks