EHedger Afternoon Grain Commentary 7-12-2011
Jul 12, 2011
Grains rallied today after a friendly USDA Supply and demand report. December corn finished 25 ¼ cents higher at $6.58, November beans finished 11 ¼ cents higher at $13.58 ¼, and December wheat finished 31 ¼ cents higher at $7.05 ¼.
The report was most friendly for corn with carryout coming in much lower than expectations for the 2011/2012 crop. First of all, they increased corn usage for Ethanol by 50 million bushels for 2010/2011, even though they are running behind pace on the weekly reports with only a few months left. We think this number is overstated by up to 150 million bushels. They did however lower Feed and Residual quite a bit so this year’s carryout wasn’t too far off from market estimates. However, for 2011/2012 corn usage for ethanol, they bumped that number up substantially. Blenders have had a huge financial incentive this year to blend ethanol and we still think the numbers are going to be towards a 4.9 billion bushel usage for this year. So increasing this number to 5.150 billion for next year seems overly optimistic in our opinion.
So basically, what I am getting at here is that the numbers seem overly pessimistic for yield and overly optimistic for demand. From here on out, yield is going to be the biggest factor and that is still obviously most dependent weather. For now, we like buying corn calls on breaks, and selling corn into these rallies. Soybean volatility is still quite low so using long options can be a good way to protect these prices. We think soybeans and wheat could hold support over corn and we saw a glimpse of that in wheat’s comeback today.
Please call your broker if you have any questions.
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