Standard Grain

          The grain markets have stabilized after a choppy trading session yesterday; it looked as if the wheels would fall off of the corn market early in Tuesday’s session, however a wetter midday forecast had shorts running for cover by the close.  Despite the increased rain amounts, conditions should still be conducive to corn planting during the next couple of weeks.  Rains will be limited while warmer temperatures are on their way.  The market is beginning to shift some focus toward Friday’s Crop Production report from the USDA.  The trade is not expecting any big surprises; however that hasn’t stopped the USDA from dropping bombshells in the past.  Sources in the cash market continue to reiterate physical tightness in corn, and to a greater extent, soybeans.  Nearby spreads are trading near record highs; May vs. July is trading +37 this morning, May vs. July soybeans at a record-high +84 cents.

      Chinese government sources reported April soybean imports at 3.98mmt vs. 3.84mmt in March and 4.88mmt last year.  Year-to-date Chinese bean imports are down about 15% from this time last year.  May soybean imports are forecasted at 5.65mmt.  Some analysts believe that imports during the May to July period will set a record, as delayed vessels from South America begin to arrive in China. 

      Analysts look for Argentina corn and soybean output to drop on Friday’s report.  Argentina soybean production is expected at 51.0mmt vs. 51.5mmt last month; corn production is expected at 25.5mmt vs. 26.5mmt last month.  Brazilian corn production is expected to be revised higher; analysts look for a number near 75.3mmt vs. 74.0mmt last month.  Brazilian soybean production is to drop slightly to 82.9mmt vs. 83.5mmt last month. 

      The EIA short-term energy outlook suggested a modest recovery in ethanol production in April.  Average output was near 840,000bpd.  The recovery was fueled by increasing RFS targets and strong demand for RINs. 

      Outside markets are mixed this morning; gold higher, equities higher, crude higher, bonds and the US$ both lower.  It’s been a quiet a quiet week on the macro-economic front, leaving the grain markets to their own devices. 

      Weather markets are difficult to analyze and even more difficult to trade.  Our technical view of both new crop corn and soybeans remains negative; the charts always tell a story, and the story is bearish for the time being.  Any projection of the 13/14 balance sheets is akin to throwing darts at a board at this point in time.  Not only can analysts not predict what type of production we’ll see this year, they can’t predict what type of demand we’ll see this year.  It’s all up in the air.  In a perfect world, farmers and livestock producers would have no bias whatsoever in regard to these markets; all marketing decisions would be based on profit margin and nothing else.  Grain producers, especially, really have nothing to go on right now when it comes to marketing.  A close examination of profit margins is the only foolproof method at this point in time. That is the best marketing advice we can provide until we know more about the crop. 

Need more information email Joe at info@standardgrain or call (312) 462-4438!  

www.standardgrain.com | info@standardgrain.com | (312) 462-4438     

A couple of thoughts on PUT options in the grain markets ahead of next week's USDA Planting Intentions report: 

A farmer shouldn’t buy PUT options against grain production because they’re bearish; the most bullish farmers are the ones who should buy the options.  PUT options are insurance, not a sale.  The bearish farmer should make cash sales, the bullish farmer should buy the PUT option insurance and keep his upside open.  December corn $5.70 PUT options run about 50 cents this morning and set a floor at $5.20/Dec futures.  There is huge risk involved in next week’s report, especially when considering that new crop corn is 30 cents off recent lows. 

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 The entire grain complex began the year sharply higher at 9:30am CST yesterday, but held the gains for a span of only minutes.  The soybean market opened 25 cents higher and was unchanged within an hour and down 15 or more by the close.  Similar action was seen in the wheat and corn markets.  Early enthusiasm for the grains inspired by a fiscal cliff deal from Washington as well as higher outside markets was quickly extinguished by professionals who had clearly been waiting for a rally to sell.  Yesterday’s trade was yet another example of why successful traders don’t follow the headlines; "Those who buy headlines will end up selling papers."  The corn, soybean and wheat markets have been in bear mode since early September; rallies will be sold until we have another weather issue or something friendly from the USDA in regards to demand.  We’re seeing some follow through selling this morning after yesterday’s collapse.  We continue to believe that stale length in the corn market especially needs to be eliminated prior to any attempt at a rebound.

      South American weather has been mostly friendly for crop development according to most sources.  Dr. Cordonnier left his estimates for corn and soybean production unchanged for both Brazil and Argentina.  While he notes the potential for crop problems down the road due to late planting and excessive moisture in Argentina, the possibility of a big crop remains intact.  As we saw this past summer in the corn market, traders will price-in a big production number until there is a problem.  Keep in mind that Dec ’12 corn dropped from the high 5.90s to 5.00 from Jan 1, 2012 until the drought hit in mid-June.  We’re seeing the same type of action in the soybeans with regards to Brazil/Argentina weather; the market will act as if there is a big crop until a weather issue is seen. 

      Despite extremely positive action in the equity markets yesterday, many remain skeptical of the fiscal cliff deal that was passed by Congress. Only $1 in spending cuts will be seen for every $10 in new taxes; the federal government’s habit of hemorrhaging money exponentially faster than it brings it in continues.  The bill involves what is essentially the first major US tax increase since 1993.  Despite rhetoric from congress and the President, taxes will go up for even the middle class due to an expiration of a two-year social security payroll tax cut.  The average middle class family earning between $50,000 per year will pay an extra 2%, or $1,000 per year.  Republicans will attempt to squeeze spending cuts out of the democrats during the next couple of months; however, it looks as if our government has just been issued a brand new credit card after maxing out all the others, courtesy of the taxpayer.

      Weekly Export Sales are delayed until tomorrow morning due to the New Year’s holiday.  The USDA will release its January Crop Production report on the 11^th at 11:00am CST.  All major USDA reports will be released at 11:00am CST rather than 7:30am CST moving forward.  Many traders look for demand cuts in the corn balance sheet, from exports in particular.  There is a good chance that these cuts may be partially offset by a decrease in harvested acreage, a move that has been widely expected by analysts for months. 

      We believe there continues to be significant downside risk in all of these markets.  Remember that "the trend is your friend," and that picking bottoms or tops in trending markets is rarely a successful strategy.    

www.standardgrain.com | info@standardgrain.com | (312) 462-4438

 The corn market is trading at new multi-month lows in nearby contracts, and below the $7.00 mark in all contracts this morning.  After trading above $15.00 just earlier this week, the January soybean contract has sold off sharply, losing near 80 cents from Monday’s highs.  The March wheat contract broke the $8.00 barrier overnight.  Nearby corn and wheat are trading the lowest levels since July; Dec ’13 corn is exploring the lower end of a recent trading range and looks poised to test the $6.00 area.  A significant winter storm is moving across much of the country this morning; much of IA, WI, MN, IL, IN, MO and OH will see good rain or snow amounts.  Some areas in the northern Plains saw activity while the southern Plains continue to suffer.  From a technical standpoint, yesterday’s close in old crop corn told the tale.  The charts saw a major downside breakout which is resulting in margin call selling and likely new speculative selling this morning.  Some talk this morning is revolving around the idea that China may be wrapping up US soybean purchases for the time being, and that the country will focus on procuring South American supplies this coming spring and summer.  Brazil has seen no major weather problems and is off to a good start; Argentina saw planting delays which may ultimately result in more soybean acreage. 

      Informa released updated acreage estimates for 2013 yesterday.  Corn acreage was pegged at 99.03mil vs. their previous estimate of 97.7mil.  Soybean acreage was estimated at 78.96mil vs. 80.1mil previously.  Winter wheat acreage was seen at 42.198mil vs. 42.5mil previously.  We can’t argue with the upward revision in corn acreage, as economics continue to favor corn heavily vs. soybeans from a producer’s perspective.  Winter wheat acreage is likely lower on dry conditions across the Plains.

      South Korea announced a tender for 220,000mt of corn for May/June shipment.  The tender notes that the corn cannot be of US origin as prices are too high relative to both EU and South American supplies. 

Weekly Export Sales this morning at 7:30am CST, pre-report estimates:

·         Corn       250,000 – 550,000mt

·         Soybeans   650,000 – 850,000mt

·         Wheat      450,000 – 650,000mt

Cattle on Feed tomorrow afternoon at 2:00pm CST, pre-report estimates:

·         On Feed Dec 1     93% (95% previous report)

·         Nov Placements    91% (87% previous report)

·         Nov Marketings    100% (103% previous report)

Look for heavy liquidation from funds and specs early today.  As the holidays approach, volatility could actually increase as liquidity dries up.  Nearby corn contracts hold the most downside risk in our opinion as stale longs exit the market.  This is the first trade below $7.00 in March corn since July, and we believe that longs had become far too comfortable.  There is a chart gap at $6.83 ½ on the March corn chart, an area that will likely be the initial downside target on today’s break. 

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       The grain markets are lower this morning in the wake of yesterday’s USDA Crop Production report.  The wheat market was the big mover on report day, posting big losses across the board.  The March Chicago contract saw a chart breakout to the downside after trading within a trend channel for several months.  The USDA cut their projections for wheat exports by 50mil/bu and consequently increased their projection for 12/13 ending stocks by 50mil/bu.  World wheat numbers were bearish as well; projected world carryout increased by 1.5%.  The government left the domestic corn balance sheet unchanged and revised the world carryout slightly lower.  The USDA’s estimate for Brazil corn production was left unchanged at 70.0mmt; their estimate for Argentina corn production dropped from 28.0mmt last month to 27.5mmt yesterday.  The USDA dropped their projections for US soybean carryout by 10mil/bu as a result of a 10mil/bu increase in crushings.  To the surprise of many traders, the export numbers were left unchanged for both corn and soybeans.  Many had thought that projections for corn exports would decrease while soybean exports would increase.  Brazilian bean production was left unchanged at 81.0mmt; Argentina bean production also left unchanged at 55.0mmt.

      As a result of yesterday’s USDA report, we have no choice but to express a negative bias towards the wheat market.  Most chart readers look as this downside breakout as being extremely bearish while fundamental traders can’t argue with the USDA.  Still, weather here in the US is a problem.  The vast majority of HRW wheat areas across the Plains have seen virtually no relief from this year’s drought.  Many believe that the hard wheat crop is in jeopardy; however most producers will tell you that they’re only a couple of rains away from being in excellent shape.  The wheat crop is resilient, especially this time of year and is a long way from being irreparable.

      Outside markets are mostly positive this morning.  Equities are marginally higher after a strong performance yesterday.  Despite a continuation of the stalemate between democrats and republicans in regards to the so-called "fiscal cliff," the market seems to be expressing some optimism.  Obama and House Republicans traded budget proposals yesterday; however no agreement has been reached at this time.  Obama said that he remains optimistic that a budget agreement will be reached and that is pretty confident that Republicans will give in to his demand for higher tax rates for top earners.  If congress does nothing, more than $600 billion in tax increases and spending cuts will take effect in January.

      Nearby corn contracts are holding up well despite yesterday’s collapse in the wheat market.  A move below $7.10 in the March contract may inspire further liquidation.  Meanwhile, opportunities to price Dec ’13 corn above $6.40 have slipped away once again.  Producers should focus the majority of their attention on the ’13 crop, as it involves far more risk from an operational standpoint.  November ’13 soybeans may have trouble holding a trade above $13.00 without a South American weather issue.  Now is time for producers to examine margins.

      We look for a soft trade this morning.  The soybean market will need to penetrate last week’s highs at $14.98 ¼ in the January contract to get traders’ attention.  Spread action has been positive for corn and negative for beans as of late.  We really have a mixed bag here as we move towards year’s end. 

www.standardgrain.com | info@standardgrain.com | (312) 462-4438