EHedger Afternoon Grain Commentary
May 21, 2010
Corn closed 7-cents higher on the day and 6-cents higher on the week. Weak financial markets, a strong dollar and liquidating commodity markets all weighed on corn prices this week. As nearby corn prices broke back towards the $3.50 area, strong demand helped support prices. China bought another 4 cargoes of U.S. corn this week and this has many wondering if we are starting a new trend. The Chinese government continues to release reserves weekly and prices continue to rise. This week the Chinese government announced they would double the amount of corn released each week to try and "cool down" prices. Large U.S. supplies and a great start to the 2010 growing season is keeping a lid on prices as December (new crop) futures approach the $4 level. I hate sounding like a broken record, but strong demand and big supplies should keep the corn market in a trading range for now until we know more about the size of the crop. So far the weather has been good and extended forecasts look good as well. If the weather stays good through pollination, we will likely see December futures trade under $3.50 and head even lower towards harvest. If the weather turns for the worst here in the U.S. and/or in China this growing season we should see corn prices find a bottom in the coming months. I still think we are positioned well at this time. Hopefully the July calls we sold this week will expire worthless and this will leave us with September calls which will take us through pollination and the end of August.
November soybeans closed ½ cent lower on the day and 19-cents lower on the week. This was a bad close for the soybean market. November soybeans traded under $9/bushel this week and at the lowest level since last October. The record South American crop continues to come online and global stocks this fall will be 45% larger than last year. A good weather outlook next week should help soybean plantings progress nicely. Chinese demand has softened as record imports have helped build surpluses and cool domestic prices. Although demand remains strong, supply has grown at a much faster pace. Even with very optimistic demand figures for China, U.S. and global supplies look burdensome. We will still have to grow a crop here in the U.S. obviously, but if we do have trendline yields we could see much lower prices this fall. If the weather stays good, expect prices to break back towards the $8.20-8.50 level in November futures. Unless the outside markets completely collapse, I would expect soybeans to find support under $8.50 until we know more about the crop size. If the weather stays good through August, I would not be surprised to see soybeans closer to $7 bushel at harvest. The large South American crop will ensure competitively priced soybeans well into our "gut slot" of exports in the September-December timeframe. A lot can change (and usually does!) but if you are not caught up on sales I would look for a rally back towards $9.30-9.50 in November soybeans to do so. For those of you who are caught up, I think we are in a good position.
Wheat closed 2-cents higher on the day and about unchanged on the week. The weak outside markets and falling Euro helped push July futures back towards contract lows. Global supplies remain burdensome and this combined with a falling Euro is making it difficult for the U.S. to pick up export business despite falling prices. India, the world's 2nd most populous country, is running out of storage for wheat and is being forced to export excess supplies. Currently India's wheat reserves are pegged at 8X the target level. With a good crop about to be harvested here in the U.S., it is hard to make a bullish argument for wheat. Even with the lowest acres in 97 years, U.S. stocks took to swell to over 1 billion bushels! The Variable Storage Rate (VSR) for the SRW wheat market may cause an artificially tight situation this year and cause basis levels to strengthen considerably. Anyone that has storage should store as much SRW wheat as possible and hedge by selling deferred futures. With storing wheat so "profitable" we should see every elevator and producer store wheat. The market is currently at a $1.10/bushel carry from July 2010 to July 2011. This is at least a 23% return for those who can store wheat during that timeframe...not bad considering current interest rates. In order to "pull" wheat out of these locations, the buyer must be willing to pay a price that is as attractive. This happens either by the spreads narrowing or by basis levels rising sharply (in my opinion). Please call if you have any questions.
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