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EHedger Afternoon Grain Commentary 10/4/12
Oct 04, 2012
The CBOT markets were mixed with a strong rally in the soybeans and near unchanged for corn and wheat.
We started the day with favorable data for the oilseeds. Export sales were above expectations for soybeans at 1.296 million MTs the majority of which was going to China. The STATS Canada report was also very friendly showing a much smaller canola crop than expected. Total Canadian canola production is now estimated at only 13.36 mln MTs in production. The market was looking for 14.7 while the last number 6 weeks ago was 15.4! Corn sales were 329,900 MTs (in-line with expectations) and wheat sales were 307,000 MTs (below expectations).
The US Dollar Index was sharply lower today which is usually supportive for dollar denominated assets like grains. The FOMC minutes didn’t contain any new language to shake up the market. Crude oil and RBOB futures were both up over 4% today but didn’t seem to provide much support for grains.
MARKET OUTLOOK: Tomorrow will be the end of the Deutsche Bank roll and we will get an updated Informa production estimate. The big report will still come next Thursday the 11th where the USDA will revise yield and harvested acres. Currently the market seems to be pricing in a much larger soybean crop than the most recent WASDE report. As I have wrote in previous letters, while I believe it is likely we will see a 200 million bushel increase to supply, I don’t believe it will translate into a higher carryout. As we saw on today’s export sales report, sales haven’t been slowing down. We are on a record pace for export sales (percentage basis) and we have reduced the total soybean demand by 616 million bushels in the past 5 months. I don’t find it hard to believe that we can replace 1/3rd of that lost demand with the 200 million extra bushels which we now may have. I do want to stay well hedged though I find it hard to believe that the price of soybeans can continue falling at its current rate unless bean yields are substantially higher than the current expectations.
Corn has a really bullish supply story, but is the demand going to pick up? Last week the USDA shocked the market with an old crop corn carryout less than a billion bushels. In response we had a limit up settlement on Friday and an overall supportive tone this week. Now that we are past the 50% harvested mark this may be a trigger point for market participants to start looking for a harvest low. We just need to start seeing export demand pick up for any sustainable rallies.
Soybean Technicals: The November contract finally reached its 50% retracement level and is now trading 47 ½ cents above the lows. If the $15.04 level is breached I would expect the market to come down the next major support level which is the 4th of July gap at $14.78. Next upside targets can be found at $15.71 ¼ and then at $16.12 ½ basis November.
Corn Technicals: Corn was unable to make it down to the critical 50% retracement level, gap fill, or 100 day moving average before its late rally last week. We now have the MACD and exponential oscillator turning higher which may be an indicator of another rally to come.
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