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April 2014 Archive for EHedger Report

RSS By: Dustin Johnson

Dustin works with a wide net of large producers throughout the Midwest. His analytical market approach and objective hedge strategy development is specific to the needs of every individual.

Wheat Higher on Dry Forecast

Apr 24, 2014

Grain markets were mixed with December corn closing 1 ¾ cents lower at $5.02 ¾, November soybeans 3 ½ cents higher at $12.31, and July wheat 13 ¾ cents higher at $6.96 ½.  Wheat was strong from a hot and dry weather forecast for the next 10 days in the Southwestern Plains.  This helped rally corn early but corn eventually found sell pressure before the close.  Old crop soybeans were negative for most of the day before rallying into the close.  The May – July soybean spread is down to only +2 cents, it had been as high as 36 ½ cents on April 1st.  It appears this spread is on its way to repeating what the March – May spread did into first notice day in late February (see chart below).

Soybean Spreads

It is rather interesting to see substantial spread weakness heading into first notice day when we are supposed to have the tightest stocks/use carryout on record.  Interior soybean basis levels are also averaging below a year ago.  The re-routing of cargoes originally bound for China which are now heading for the US may have a larger impact on our final carryout than the USDA currently has projected.  There was a sale out of Argentina today bound for China for July delivery.  Their prices are at a substantial discount to US gulf FOB which should be a limiting factor for price.  With the massive unwinding of these CCFD’s it will be interesting to see how the funds react over the next 30 days (For more information about the Chinese Commodity Funding Deals please visit the following link http://www.zerohedge.com/news/2014-04-21/how-chinas-commodity-financing-bubble-becomes-globally-contagious )

The funds are still massively long old crop soybeans and corn.  If we see favorable weather and more unraveling of South American soybean purchases there could be more downside risk to the market in the short run than previously thought.  The outliers are still the drought conditions for wheat in the US and the Ukrainian situation.  If weather is favorable and the eastern European tensions subside, look out for downside market pressure.

US Drought Monitor

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EHedger | 866.433.4371

Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

45+ Years of Ag Brokerage Expertise

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


Corn Prices Fall from Favorable Planting Weather

Apr 16, 2014

Wheat finished with double digit losses while old crop soybeans posted double digit gains.  Favorable planting weather is forecasted for the Midwest which pushed new crop corn back below $5.  Soybean strength was a continuation of yesterday’s bullish NOPA crush report.  This latest crush number raised the pace well beyond previous estimates and suggests the need to import more or ration crush demand through higher prices.  Wheat retraced some of yesterday’s gains but the price is still well above its major moving averages.  After the grains closed it was reported that a group of pro-Russian separatists attacked a Ukrainian military base.  Escalation of Ukrainian/Russian tensions has resulted in rising wheat prices so this may affect prices on the overnight open.

The EIA ethanol report released this morning showed production up 43,000 BBL per day while stocks were down 0.5 to 16 million BBL.  This was a rather strong report but also not a surprising one given the strong margins.  Even with strong weekly ethanol numbers final demand for ethanol is not likely to change anytime soon given the blending wall.  Export and feed demand have been strong for this marketing year but we are still going to be left will between 1.3 and 1.5 billion bushels of corn carried into 2014-2015. With the potential for aggressive planting in the next few weeks we believe corn has more risk to the downside.  The technicals are starting to roll over as well.

December 2014 Corn

December 2014 Corn

Tomorrow morning the USDA will release weekly export sales at 7:30am.  Estimates are calling for -100k to +100k MTs of old crop beans, 175k to 350k MTs of new crop beans, 550k to 850k MTs of corn (old/new combined), 50k to 250k of old crop wheat and 225k – 375k of new crop wheat.

As a reminder markets will be closed on Friday in observance of the holiday and reopen for Sunday night trading.

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EHedger | 866.433.4371

Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

45+ Years of Ag Brokerage Expertise

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


WASDE Report Tomorrow

Apr 08, 2014

Grains settled higher on Tuesday with old crop soybeans leading the way.  There was some confusion toward the end of the day session when the electronic corn, wheat, and livestock futures stopped trading.  The CME group reported their technical error and motioned for the pit to handle the settlement process.  In the end May corn settled 7 ¾ cents higher at $5.07 and December corn was 7 ¼ cents higher at $5.13.  This was a large 4 cent swing in the May – Dec corn spread between the time electronic markets froze and the settlement of the pit.  Even though December corn settled at $5.13, it never traded there as far as the pit quotes are reporting, it was only a product of a spread sale on the final minutes in the pit. We expect the overnight December corn futures contract to open near $5.08 - $5.09 where they stopped trading.  Soybeans continued trading during this shutdown period and the May contract settled 18 ¼ cents higher at $14.82 ½ while the November contract was 9 ¼ cents higher at $12.17 ½.

Intraday chart of December corn:

December Soybeans

CIF basis was a bit stronger today for corn and slightly weaker for soybeans.  Yesterday the front end of the market was the weakest on heavy bearspreading, today it was the front end that led the way higher on heavy bullspreading (until the pit settlement of corn).

After the close the USDA released their weekly crop progress report.  Winter wheat conditions were reported at 35% good-to-excellent which is 1% less than they were at this time last year.  Cotton was 6% planted which is average and rice was 15% which is slightly below the average of 19%.  The USDA will start reporting the corn planting progress in next week’s report.

WASDE REPORT TOMORROW

Traders are preparing for the USDA’s WASDE report which will be released on Wednesday at 11:00am CST.  The report will include the typical monthly changes to the USDA’s supply and demand estimates but most traders will be watching for the latest South American production estimates as well as projected final soybean demand.  Getting to our final domestic soybean carryout has been the biggest unknown factor for CBOT traders.  On last month’s report the USDA raised soybean imports by 5 million bushes, raised exports 20 million, and lowered crush by 10 million resulting in a net carryout reduction of 5 million bushels.  Their total export demand estimate was 1.530 billion bushels.  Cumulative sales are already 103 million bushels more than this estimate at 1.633 billion bushels.  It is normal to expect a certain amount of these extra sales to get rolled to the following marketing year. Last year for example 46.2 million bushels were sold but not shipped.

Most project the USDA to account for the strong sales by raising their export estimate.  The recent Reuters poll has the average analyst projecting a final carryout of 139 million bushels which is 6 million less than the March estimate.  We doubt the USDA will report a dramatic change and will stick to a more gradual one as it did last month. We could potentially see another 5-10 million in imports and 10-15 million in export sales.

Corn export sales have been strong as well.  Cumulative sales are at 1.5894 billion bushels and the last WASDE report is guessing 1.625 billion.  The USDA is likely to raise this estimate again.  The average analyst believes the corn carryout will drop by 53 million bushels from the March estimate which will most likely come from higher exports.  However, any increase to exports will likely result in a drop in feed demand in our opinion since that is already inflated based on cattle and hog numbers.  Although we believe the feed estimate will ultimately drop, it may not be on this report.  The latest stocks report showed roughly 100 million bushels less than expected.  As we know from previous stocks reports these surprises can be from the amount bushels in transit at the time of count.  An accurate measure of the abundance of corn can be seen in the interior basis changes through the next few months.  At the end of the day we are still projecting a carryout near double of what we thought on this report last year.  This gives the market a larger margin of error when it comes to production changes.  This is also likely why the July – December corn spread is still below 0 when this time last year it was trading at 87 cents over!  I have included the average analyst estimates in the tables below. Have a great rest of the week!

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EHedger | 866.433.4371

Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

45+ Years of Ag Brokerage Expertise

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


Are November Soybean Futures Overpriced?

Apr 03, 2014

Grains settled higher on Thursday rebounding from Wednesday’s losses.  The market choppiness is a product of uncertainty, mainly in the old crop soybeans.  We have sold roughly 105 million more bushels of beans than the USDA has in their final demand estimates.  When we are only expecting a final carryout of 140 million bushels being oversold means we can’t just lower that carryout.  These extra sales will either need to be rolled into the following crop year or another aspect of the supply/demand table will have to get adjusted (or a combination of both).  With the record large South American crop we could see easily see more soybeans imported.  Or we could see crush demand slow from price rationing. So far we haven’t seen enough of either to make the USDA numbers fit and that is why there has been such a rush to buy old crop soybeans.  Does that mean we should also see November soybeans rally?  These are two completely different crop situations.  New crop soybeans are projected to get a record 81.5 million acres in the US this year and there are still acres unaccounted for which means this number can grow.  South American soybean production is expected to top last year’s record crop by 8%.  The world stocks-to-use ratio is projected to be above 25% which is clearly abundant.  All signs point to a stocks build in 2014-2015.  Should November soybeans add risk premium just because the old crop contracts are rallying?  Barring any weather problems this summer we believe November soybeans are overpriced above $12.00 and for that reason we want to remain well hedged heading into the planting window. The next large report to watch for is the April 9th WASDE which will have updated South American production estimates as well as US supply and demand estimates. For more marketing information please contact EHedger at 866-433-4371.

November Soybeans

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EHedger | 866.433.4371

Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

45+ Years of Ag Brokerage Expertise

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


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