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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.

EHedger Weekly Grain Wrap-Up 8/07/09

Aug 07, 2009
 
SETTLEMENTS 8/7
         
 
Sep 09 Corn
321 ½  
- 11
Dec 09 Corn
326
- 14 ¼
Aug 09 Beans
1186 ¼  
+ 15 ¾  
Nov 09 Beans
1039 ½  
+ 9 ½  
Sep 09 Wheat
489 
- 11 ¼
Sep 09 KC Wheat
524 ¼ 
- 9 ¾ 
Sep 09 Min Wheat
571 ¼  
- 8
Dec 09 Meal
318.7
+ 4.2
Dec 09 Oil
37.57
+0.03
 
 
 
 
 
 
 
 
 
 
 
 
 




              Corn closed 14-cents lower on the day and 23-cents lower on the week. After a quick 60-cent rally off of the lows, corn quickly erased most of those gains this week. The USDA’s announcement of a revision to acres on the August 12 report and a strong soybean market caused a large short covering rally. We rallied all the way up to $3.75, which was higher than I anticipated. However, the market was not able to keep those gains as good weather and weak animal prices were too overwhelming. Hog prices are down 25% over the past three weeks. Forced liquidation in the hog industry, low cattle on feed numbers, low poultry numbers and a very weak dairy industry are all catching up to the corn market. Ethanol demand and export demand has been picking up, but hasn’t been enough to keep corn supported. The national corn crop looks good. Most areas have seen good rains and many areas could see record yields. There are still some problem areas across the belt (most notably Illinois), but many of those areas are improving as well. These areas will still need to get by without an early frost, but with most areas looking good the market isn’t willing to wait to see if a frost develops. I expect the corn market to remain weak as we head into the end of the month and the farmer sells the remaining old crop bushels. After those bushels are sold, we will have to see how/if demand picks up and how the crop finishes up. We have the USDA report on Wednesday. Most are looking for a reduction in planted acres of 500,000 up to 2 million. This has already been priced into the market, so the big surprise would be if acres are unchanged or higher. (I am not predicting this!) Hopefully you took advantage of the recent rally to get caught up on sales. If you are still behind, I would sell a rally ahead of the report if we get one. 
 
August soybeans closed 14-cents higher on the day and 50-cents higher on the week. November soybeans closed 9-cents higher on the day and 57-cents higher on the week. Continued export sales to China was the dominating factor this week. Even with good growing conditions in the U.S. and the expectation of a large increase in acres in South America, soybeans continue to rally. The rally has caused soybeans to look good “technically” and this has caused a strong wave of fresh buying. Strong sales to China also have many increasing their demand estimates for the ’09-10 crop year. I still think we are overestimating demand in a big way. Although China has been a huge buyer of soybeans, demand around the rest of the world seems to be falling. Domestic demand is certainly getting worse and export demand (besides China) is lower. The drought in Argentina combined with stockpiling in China took a combined 30 million MT of soybeans off of the world market. This created a “tight” old crop situation and in the world. The fear of “running out” of soybeans has caused the world user to get coverage both in the old crop and in the new crop. China has a lot of US dollars that are becoming worth a little less every day. Since they know they will need a certain amount of soybeans anyway, why not buy them now to make sure they get what they need? It’s pretty obvious that this is going on. With Argentina and Brazil quickly running out of exportable soybean supplies, the U.S. will be the only supplier until South American harvest in March/April. This has many people nervous and no one wants to get caught without supplies this spring. Although this has proven to be bullish now, it could turn out to be very bearish later. 
This reminds me of what happened in the wheat market two years ago. Short global supplies caused end users across the globe to get coverage for the fear of “running out”. This caused wheat prices to rally sharply while this buying was taking place. However, this rally caused wheat to become expensive relative to every other crop and it rationed demand globally. Farmers responded across the globe and planted a record amount of wheat. The world user also stopped feeding wheat and demand plummeted. Wheat prices have been breaking ever since. In my opinion, this is happening in the soybean market right now. Soybean and soybean meal prices are at historical highs relative to other feed ingredients. With animal numbers falling and other feed ingredients much cheaper, soybeans are rationing demand globally. At the same time, acres should increase to record levels in the southern hemisphere as a result. I have been saying this for some time, and maybe I am dead wrong (wouldn’t be the first time!). 
I know there is still a long time until we know how large our crop in the U.S. is and how big the South American crop will be. A lot of things can change between now and then, and I realize that. Old crop soybeans could still do anything from here, and the weather could still do anything. Prices are within striking distance of the recent highs, and we could easily start another leg higher if we take out those highs next week I just want to point out some of the negatives of the soybean market (as I see them) going forward since very few people are.
 
               Wheat closed 11-cents lower on the day and 39-cents lower on the week. Large global supplies, good weather and weak demand continue to plague the market. Wheat continues to break in search of demand. The complete disconnect that the wheat contract went through 18-months ago is still weighing on the market. Prices remain too high to feed and too high relative to wheat from other exporting countries. Until we see demand pick up, it will be hard to see wheat start a bull market. With large short positions, we will continue to see short covering rallies, but for now those should continue to be sold. 
 
 
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COMMENTS (2 Comments)

Anonymous
They always say stuff like that,oh it's already been priced in. That line gets old fast!
10:02 AM Aug 10th
 
Anonymous
I thought the market was supposed to be trading off recent acreage estimates. A little disappointing comment that trade has already priced in 2 million less acres of corn. I guess they have all their bases covered.
2:44 PM Aug 8th
 
 
 
 
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