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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 9-9-2011

Sep 09, 2011

It was an interesting end to a short week at the Chicago Board of Trade. The outside markets were sharply lower, triggered by continued uncertainty about the European debt crisis. The corn and soybean markets were able to finish higher despite these outside factors. December corn settled 2½ cents higher, closing at 7.36½. November soybeans were able to settle 8½ cents higher at 14.26¾. Chicago wheat was unable to follow corn and soybeans and settled 8¼ lower for the December contract.

This morning’s export sales report was largely disappointing, as corn was below the trade estimates and soybeans were at the lower end of estimates. In addition to the sales report, it was announced that China has cancelled 240,000 MT of US soybeans for 2011-2012 delivery. This was an interesting development, as we are going to be heading into the glut slot of our supplies during harvest. We will continue to monitor this activity to see if further cancellations are reported.

Stories of demand destruction have been circulating lately. We have heard stories of Australian feed wheat trading at $60.00 a ton discount to US corn. Chinese crush margins have remained poor and, as previously stated, we saw a 240,000 MT cancellation of Chinese soybeans for next year’s delivery. It is not typical to see cancellations at this time of year for a crop we haven’t even harvested yet. With regard to the wheat market, India is also starting to export wheat for the first time since 2008 on huge surpluses.

With December corn trading par with December wheat, we expect to see a lot of wheat being fed in the world. Looking back to see if there were any years where December wheat has traded at a discount to December corn, there looks to be only one year in the last 40, and it was 1983.  Interestingly enough, December was the first contract to do so (neither July nor September traded negative, December traded 12 cents negative). Also March, May and July 1984 all traded below corn, with July 1984 making the lows at around 20 cents under on July 17. Wheat stayed around "par" with corn that year for nearly six months, similar to what we are currently looking at (at least in the futures), only it was the opposite six months starting with corn harvest. I also looked up the corn and wheat feeding number for those years:

In '82/'83, corn feeding was 4,640 and wheat was 195

In '83/'84, corn feeding was 3,938 (-702) and wheat was 371 (+176)

In '84/'85, corn feeding was 4,180 and wheat was 407

Eventually we could feed enough wheat to significantly help increase our ending corn stocks for next year. This could eventually put an artificial "ceiling" for corn from demand destruction as right now corn is the most expensive feed grain in the world. Of course, if we see even further reductions to yield than what the market is already projecting, we could see corn go back and take out the highs again, but rationing is going on now and at levels above here.

I have included our estimates for Monday's report as well as the average analyst estimates. I will have the report and our reaction in the morning grain letter on Monday morning. Have a great weekend!

Chart 1 9.9.11

Chart 2 9.9.11

Chart 3 9.9.11

Best Regards,

EHedger

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