EHedger Afternoon Grain Commentary 8-19-2011
Aug 19, 2011
Corn and wheat staged a large rally today to finish the week. December corn finished 12 ¼ cents higher at $7.25 ¼, December wheat up 22 cents at $7.61 ¼, and November beans up 7 ½ cents at $13.68 ½.
The market is still heavily supporting corn on supply concerns. Next week we have the highly anticipated Pro Farmer crop tour. This can provide a lot of volatility in the markets as reports start coming in out of the field. Either way it will be one of the main focus points of the market.
Supply concerns have obviously been high enough lately to keep the price well supported since we are just off the contract highs. Rains are expected to be favorable in the short term. It all depends on where the national average yield goes from here. Currently for corn it is set at 153 by the USDA which is well below the trend. If you look at the last 7 of the 8 times the USDA has dropped the August yield estimate significantly, the final yield ended up being MORE than the August projection. The point is many analysts are still expecting further final yield reductions which may end up being the case, but we have to remember that the USDA has a history of overestimating these reductions when it comes to the August reports. I have the December 2011 corn chart showing the contract lows at 3.70 all the way to this week’s contract highs at $7.33 ½. We came into the year expecting a tight carryout and the latest S & D report estimates that we are going out of the year with a surplus of 940 Million bushels. For the 2011-2012 corn crop they are projecting a tight carryout but supply and demand are obviously still widely open. The point is, the market has priced a lot of these concerns in right now and that is why we have doubled the price from the contract lows. Technical retracements and moving averages are all sharply below current levels and the funds are still loaded up with long positions. If production turns out to be worse than what they are projecting then we can obviously see the market continue to take out the highs, but we will have to figure in some demand destruction as well to ration supply. Ethanol numbers and exports are nothing to write home about right now for corn, but until we get more definitive information about the size of the crop they could keep this market supported on production concerns.
With the Dow Jones having another 200+ point swing today it looks clear that the market isn’t ready to drop the volatility just yet. We want to stay in sustainable positions and stay well hedged at these levels. Please call your broker if you have any questions.
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