What Will Push Grain Prices In the Next Few Days?
Oct 19, 2012
Outside markets are somewhat mixed to start the morning on what is the 25th Anniversary of the 1987 US Stock Market Crash. It seemed as if Google was trying to kick-start another crash yesterday with such a huge earnings miss on an early release. There were also disappointing earnings out of McDonalds and Chipotle as well. US employment numbers were weaker yesterday, but there seems to be more positive data being released in regards to the US housing sector. As far as the energy market is concerned I thought it was interesting to hear Goldman Sachs now predicting an end of a "sustained increase" in crude oil prices that started a decade ago, basically saying that the oil market will find a new equilibrium around $90 a barrel (Brent Crude price) due to rising oil supplies from the US and Canada. This is an important change considering Goldman was highly influential and one of the first to anticipate the big jump in oil prices back in 2005. The bank has maintained a bullish view on oil prices since, and from my perspective seems to be turning a little more bearish. Overall the "outside" markets are mixed this morning, but if more concern hits the US stock market I could see some additional risk being taken off the table as we head into the weekend.
As for today, the trade is trying to get there hands around a ton of interesting dynamics below is a brief overview:
- South American Weather??? The trade desperately wants to see that "early" beans will be available to take the heat off US exports. There is some talk further delays in planting and more extreme heat may make that a more difficult task than some analyst want to believe.
- Europe??? What exactly is happening in Europe? We saw Strategie Grain cut production estimates yesterday. We are also seeing the EU import large amounts of corn out of Ukraine, and hearing rumors that they are very low on feed wheat. Some thoughts circulating they will eventually be feeding higher quality wheat, which would take them out of the export game and put more pressure on US exports. Others believe they are going to import twice as much corn as the USDA currently has estimated.
- Ukraine Exports??? The Ukraine confirmed their wheat export bans for mid-November. There is also some talk that they are close to being out of corn. Some thinking the Brazilian basis has pushed higher because of more limited supplies out of Ukraine after heavy EU and Japan purchases. If Ukraine is out of the game South American supplies could start to get more expensive.
- US Corn Exports??? Obviously they have been horrific, but there is some talk that Europe could need a lot more corn than the USDA has anticipated. This along with other world interest could ultimately tap South American supplies. There is also concern that South America will be forced to load soybeans rather than corn and buyers in Japan, South Korea and other parts of the world will have no choice but to buy US supplies after we turn the calendar to 2013. In return maybe the USDA's current export estimates (which are at 30 year lows) are actually understated.
- What about next years crop??? The Informa acreage numbers are scheduled to be released at around 10:30am CST. I suspect there will be some comparison to their last estimate which showed US corn acres projected at 97.5 million acres with a 162.2 average yield, essentially a 14.6 billion bushel crop vs. this year's current USDA crop estimate of 10.706 billion bushels. Keep in mind this is close to a 4.0 billion bushel jump. Their soybean numbers last time showed acreage jumping to 79.87 million with an average yield of 43.8 bushels per acre, essentially producing a crop of 3.45 billion bushels vs. this year's current USDA crop estimate of just 2.860 billion bushels. These numbers seem insanely high based on the uncertainty of weather moving forward. Unfortunately the trade likes to start hopping for the best, but as producers we have learned through the years to prepare for the worst. Moral of the story, use the rallies to eliminate a small portion of your risk and to lock in profits, just don't get carried away...there are still a ton of cards in the deck we have not seen.
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