Joseph Vaclavik is the president at Standard Grain in Chicago. Standard Grain provides futures and options brokerage to farms, feedlots, elevators, processors, end-users and traders. Visit www.standardgrain.com for more information.
Monday Morning Grain Update...
Nov 12, 2012
Grain markets are mixed this morning. Margin call selling in the soybean market is out in full force after Friday’s poor report-day close. The USDA raised their projection for 12/13 soybean carryout by only 10mil/bu on Friday, a number that the trade obviously viewed as being hugely bearish. The most watched number in regards to the beans would have been the 1.5bpa yield increase, resulting in a production estimate that was 111mil/bu higher than the October estimate. Although demand was raised by 100mil/bu, it seems that many traders are looking for some sort of switching or cancellations of export sales down the road. We saw some small instances of this on Thursday’s Export Sales report. This notion will hinge squarely on South American production and the availability of their crop to Chinese importers. Nevertheless, the soybean market is now trading well below every major moving average and is nearly $3.50/bu removed from contract highs. November ’13 soybeans traded below the $13.00 mark overnight, but have since recovered. Inversions in the soybean spreads are quickly disappearing. The Jan-July spread is trading at a 38 cent inverse this morning after moving over $2.20 during August. The USDA did very little to update the corn balance sheet. The estimate for corn yield was raised by 0.3bpa while usage was raised only slightly. The result was a 28mil/bu increase in projected carryout. The wheat numbers were outright bearish, with 12/13 carryout now projected at 704mil/bu vs. 654 in October.
The CFTC released their Commitment of Traders of Friday. Managed money sold about 1k corn, leaving their long position near 235k. The same group was net sellers of about 10k contract of soybean, leaving their long position near 165k. Wheat traders were about flat, long 48k. Continued liquidation in the soybean market has been the theme as of late. The perception of a "big" crop in South America paired with far better than expected yields domestically have put major pressure on the soybean market, which has essentially trended lower since the first week in September.
Outside markets are mixed this morning. Crude oil is marginally lower while equities and metals are marginally higher. The US dollar has stabilized, for the most part, since last Tuesday’s election ended. Upbeat economic data out of China may be the cause for some early enthusiasm in the US equities this morning. According the EIA, the US will overtake Saudi Arabia in oil ouput by 2020 in a major shift that would alter both the economy but also world politics. The statement, which was made in the EIA’s World Energy Outlook, also mentioned that the US would be a net exporter of crude oil by the year 2030.
Today is a day of margin call selling in the soybeans. The corn market is holding up extraordinarily well given the pressure. The wheat market, despite a barrage of bullish fundamental news including the poorest US crop condition on record, has been unable to hold a rally for several months. We look for the downward, range-bound trade to continue in wheat. Look for an extremely volatile trade in soybean moving forward. The market’s action will hinge almost entirely on South America.
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