EHedger Afternoon Grain Commentary 1-17-2012
Jan 17, 2012
Grains finished stronger with Soybeans leading the way. March corn finished 4 ½ cents higher at $6.04, March beans 25 ¼ cents higher at $11.83 ½, and March wheat 2 ½ cents higher at $6.04 ¾.
Soybean strength was derived from some weather concerns in South America, strong NOPA Crush this morning, and stronger outside markets for the majority of the day. We are also coming off of a large break which helped reinforced the move higher. Even after today’s rally, soybeans are still 20 cents below where they were before last week’s report. Corn is down 47 cents since the report, and wheat is down 36 cents.
NOPA crush came out above expectations this morning and was considered "bullish". December Soybean Crush was 145.42 mln bu and was expected to be 140.7. Oil stocks came in slightly above expectations at 1.938 bln lbs. Meal exports were at 608,159.
Export inspections were also strong for soybeans coming in at 40.91 mln bu when expectations were calling for 28. Corn was at 30.05 when expectations were at 32, and wheat was at 13.43, expectations at 16.5.
The outsides were stronger on a higher Chinese GDP than expected. For the 4th quarter the Chinese GDP was 8.9% compared to the average economist guess at 8.7%. This helped many commodities today including a rally in crude oil and copper.
The CFTC’s Commitment of Traders report shows that the "managed money" is currently net short 35,669 contracts of Chicago wheat, net long 223,752 contracts of corn, and net long 44,617 contracts of soybeans. They obviously have a considerably large size of net long positions in corn and in our opinion it still leaves the producer extra downside risk –should they (managed money) decide to exit their positions.
Highlights from the report include higher corn stocks, higher corn production, higher world wheat carryout, and higher winter wheat acres in the US. We ended up with about 240 million bushels more in quarterly corn stocks than what the market was expecting and an average corn yield of 147.2 bpa.
So what do we expect going forward in 2012? Well there is a lot of year left and this is just the start. Typically the January report can have a lasting effect on the direction of the first quarter. This report loosens some of the dependence the world was requiring out of Argentina for corn, which has been a major reason for the rally in recent weeks. We aren’t necessarily out of supply trouble just yet. We are still down about 400 million bu corn on this report as opposed to this time last year. But… we are looking at a front-month wheat price that is almost $1.75 CHEAPER than it is today. The abundance and relatively cheap price of world wheat should continue to weigh on corn demand as long as the feed industry continues to have that option. Argentina is also still projected by the USDA to produce 3.50 Million MTs more corn than last year even with the recent weather problems.
So with all that said I do think that there is still quite a bit of risk for old crop corn especially. New crop corn could ultimately find support much sooner than old crop as it has to hold acres still. As far as soybeans go, we did see a small decline in expected world ending stocks on the report. Weakness in corn and wheat can still pull this market down, but for the most part the report was not nearly as bearish for soybeans. We also have to contend with weather in South America.
Link to Quarterly Stocks: http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1079
Link to Supply and Demand: http://www.usda.gov/oce/commodity/wasde/
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