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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 Afternoon Grain Commentary 6/29/12

Jun 29, 2012

USDA Report

If the outside markets had not been so strong today, this report would likely have sent corn and soybeans lower.  While the initial reaction at 7:30 am sent new crop corn sharply lower, within 10 minutes we traded 22 ¾ cents higher.  The corn acres were 300k above the average analyst estimate and soybeans were 600k above.  Corn’s quarterly stocks were slightly below expectations at 3.148 billion bushels while soybean stocks were slightly above expectations at 667 million bushels.  Wheat ending carryout was 743 million bushels which was 18 million above the average guess.

The early morning forecast was still expecting dry conditions but rains were added to the midday update.  Much needed precipitation has been added for the lower section of the Midwest in the 7-10 day period.

Given that the Dollar Index was sharply lower and crude oil was over $7 higher today, the market saw the initial price drop at 7:30 as another opportunity to get long.  Obviously if we continue to get dry weather patterns for the next couple of weeks they can continue to march this market higher.  At the same time if we add rains to the Sunday night forecast corn and beans can see a sharp turn around lower.  It is still all about the weather but we have to also take into account demand destruction.

We are still at demand destructive price levels for corn which may ultimately lead to price declines.  Analysts are looking at declining corn yield potential but are still forecasting demand at current USDA S&D estimates.  We have to remember that the USDA increased demand from 2011 by a billion bushels of corn. Are we really going to see these increases to feed and exports at $6.35 a bushel?  Feeding margins are poor and US corn is now the most expensive feed grain in the world again.  Ethanol blending margins are much lower and the ethanol plants themselves are starting to shut down (as witnessed over the past few weeks.)  I don’t want to sound overly "bearish" because it is still about weather, but I just want to make the point that it may be hard for the market to sustain these gains without further changes to supply and/or energy prices.

Lastly, I wanted to discuss the changes to the Commitment of Traders report.  For the week ending Tuesday, June 26th, open interest in corn using futures and options dropped by a whopping 131,616 contracts!!!  The managed money liquidated 40,988 shorts as well as 3,161 longs.  The non-reportable trader liquidated 22,029 shorts.  What does this tell us?  That this was a short covering rally where the funds jumped out of the shorts they had on as well as the retail trader and hedger.  The hedger likely moved many of these shorts over to the commercial, as the commercial short position went up.  Soybeans also had a large decrease in open interest but long additions were made to the already massive net long position held by the funds.

For now all eyes will still be on weather for Sunday’s 5pm open.  If you would like to receive a free trial of our research including hedge recommendations, please sign up using the link below.  To discuss opening an EHedger account with one of our experienced agricultural brokers, please call 866-433-4371.  Have a great weekend!

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EHedger 

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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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