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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 Afternoon Grain Commentary 2/28/13

Feb 28, 2013

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Grains and oilseeds closed higher on Thursday after higher sales were reported for old crop soybeans.  May soybeans closed 12 ¾ cents higher at $14.52 ¼, May corn 8 ¼ cents higher at $7.03 ½, and May wheat up 2 ½ cents at $7.14 ½.

Old crop soybean sales were at 689,000 MTs, far more than we need to average to meet the USDA export estimate of 1.345 million bushels.  At this point in the year we already have contracted 1.2713 billion and have shipped 1.101 billion!  That means we need to sell at a pace of only 2.6 million bushels per week (70,761.6 MTs) to meet the objective set.  To put it in perspective, look at last year.  From this week in 2012 until September 1st 2012 we sold another 362.8 million bushels of soybeans!  Obviously we can’t afford to do that this year or we would run out of soybeans.  I think the main point to take away from these staggering numbers is that volatility could soar over the next 4 months as Brazil figures out its logistical problems and we get an overall assessment of South American production and availability.   With the soybean volatility index running at only 20.63, it looks relatively cheap for buying options for upside potential against sales.  Note how far below the 200 day moving average the index is as well as from last summer!

Soybean Volatility Index Soybean Volatility Index

Old crop corn was also rebounding today with the May contract nearing its major moving averages again after trading in a lull for most of February.

May 2013 Corn SpreadMay Corn

What is especially important is how cheap wheat has been getting to corn.  March wheat is back to a large discount to March corn. With wheat comparatively cheap we have to assume that wheat feeding will increase substantially in the US again.  Just take last year for example.  Wheat was trading in-and-out of a discount to corn which helped propel wheat feeding by 213% from the year before!  For the 2012/2013 marketing year we ended up feeding 350 million bushels of wheat. Since wheat has its own tight balance sheet and we are once again competitive on the world market, we may see wheat supported as long as old crop corn doesn’t slip lower again.

Corn-Wheat Spread in 2012Corn-Wheat Spread in 2012

May Corn-May Wheat 2013May Corn-May Wheat 2013

We are done setting the spring insurance prices for Federal Crop Insurance and the RMA should release the official numbers tomorrow.  We have an average of $5.65 for corn and $12.87 for soybeans, very similar to last year.  For now we are staying with our current sale recommendations but with the insurance guarantee it may change how much downside coverage you need.  If you would like to get the EHedger grain letter full time, please sign up using the link at the top of the page. Tomorrow we have Informa’s pre-WASDE estimates and we also have the first trading day of the month. Happy Friday and have a great weekend!

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EHedger is a premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

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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