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February 2012 Archive for Standard Grain

RSS By: Joe Vaclavik

Joseph Vaclavik is the president at Standard Grain in Chicago. Standard Grain provides futures and options brokerage to farms, feedlots, elevators, processors, end-users and traders. Visit www.standardgrain.com for more information.

 

New Highs in Beans Overnight, December Corn Struggles

Feb 28, 2012

 

·         Grains mostly higher overnight, same story continues: Ag complex led by old crop beans, Dec corn is the weak link
·         Traders clearly convinced that corn acreage will be heavy at the expense of soybeans; Recent Chinese demand also supporting the now hugely overbought soybean market; March, May and July contracts all trading $13+ overnight
·         Outside markets supportive for grains this morning; US$ lower, equities/metals higher; Crude mostly flat, still trading in the $108-109 range
·         US Farmers collected a record $10 billion in crop insurance indemnities for their 2011 crops; 5% of claims on 2011 crops are outstanding, meaning that the amount is likely to climb even higher; Previous record was $8.67 billion in 2008
·         Major snow event to help dry areas in eastern Dakotas and southern Minnesota; Light rains to aid areas of far northern Iowa
·         Opening calls higher across the board
 
 
The fate of corn may rest in the hands of soybeans this week. As soy continues to grind higher, corn has been able to hold onto small gains. The December corn contract continues to be the weak link; however it has been able to hold the $5.50 area for a few days. 
I’ve travelled through every major corn/soy state during the past 30 days and have struggled to find more than a few producers who will be planting any significant amount of soybeans. One trader friend of mine recalled the 2007 acreage experience: Most believed 90 million acres of corn was unachievable, as a comparably large number hadn’t been seen since the 1940’s. USDA released a planted acreage number of 90.5 million at the end of March, which was revised upwards in June to 92.9 million.    
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438

Grains Lower Overnight, Soybeans Firm

Feb 27, 2012

 

·         Grains mostly lower overnight led by nearby corn; Soybeans continue to hold together well while wheat follows corn
·         Outsides mostly negative for grains today, US$ higher and crude $1+ lower, equities also lower
·         Soybean export sales on Friday were the largest of the marketing year; Beans continue to gain on corn consistently; Trade is either trying to "buy back" some bean acreage, or is conceding that corn acreage will be enormous at soybeans’ expense
·         July vs. Dec corn spread closing at the highest level since September on Friday as new crop corn falls
·         Storms to affect key areas of Argentina, S Brazil and Paraguay early this week
·         Slow news day today
 
The USDA released their Outlook numbers last week. Corn growers around the country are very concerned over the prospect of a 14+ billion bushel crop and the price implications that would come along with it. USDA projected corn carryout to balloon to 1.6bil/bu for 12/13 according the balance sheets released on Friday. They believe that the ethanol industry has plateaued and will see limited growth. Granted, the acreage surveys have not been turned in and there are still a few weeks until the March 30th prospective plantings report; however the USDA info is cause for concern at the very least. The fact that their data is so bearish may be a shot across for the bow for producers who have done no marketing for the 2012 crop. Call the office or send an email for ideas on hedging the 2012 corn crop ahead of the March report.         
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 

New Crop Corn Struggles, Beans Continue to Move Up

Feb 24, 2012

 

·         Grains lower overnight; Corn and wheat continue to show virtually no correlation to soybeans as spread between corn and soybeans widens further
·         USDA Outlook numbers virtually unchanged from baseline projections that were released several weeks ago; Gov’t pegging corn and soybean acreage at 94mil and 75mil respectively; These numbers are not based on survey data
·         USDA pegging corn ending stocks at 1.616bil/bu for the 12/13 marketing year, a scary prospect for corn producers looking for higher prices
·         USDA pegs soybeans ending stocks at 205mil/bu for the 12/13 marketing year
·         US wheat carryout expected to expand to 957mil/bu according to USDA Forum numbers
·         Crude oil prices over $108 overnight as traders grow concerned over Iran situation; Many technicians now look for a move to the $113-115 area
·         China purchase of 120,000mt of US corn confirmed yesterday; Most likely the cause for the late-day rally on Wednesday
·         Dec corn trading below major trendline support this morning (chart on next page); Also approaching "oversold" status
 
Soybeans Producers: Yesterday, we recommended an option spread in November soybeans to protect no more than 25% of new crop production. Most producers have their eyes glued to the corn market while soybeans are presenting an opportunity. The November soybean contract is drastically overbought from a technical standpoint (pictured next page). As with any early season hedge, we hope to hedge another round of beans at much higher strike prices in the coming months. Details below:
 
Buy 1 November Soybean $12.60 PUT
Sell 1 November Soybean $15.00 CALL
Pay 60c or better. Sets floor at $12.00 and ceiling at $14.40
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 

 

Futures and options trading involves risk of loss and is not suitable for everyone.

Quiet Overnight, Range Trades Continue in Grains

Feb 23, 2012

 

·         Grains mixed overnight; Corn and wheat trading tight ranges while beans were able to rally back from last night’s lows
·         Argentina/Brazil crops stabilized for time being thanks to recent storms; More rain expected through next few days
·         USDA Outlook Meetings today and tomorrow in Washington; Most anticipate bearish tone from the gov’t; Focus on large plantings and growing grain stocks is likely
·         Crude oil trading over $106 this morning as tensions between Iran and the West offset concerns over a global demand slowdown; Brent Crude trading nearly $20/barrel over WTI (Nymex)
·         Euro currency showing strength again today, trading the highest levels since December; This week’s 2nd Greek "bailout" adding to strength
·         Export Sales delayed until tomorrow morning due to President’s Day holiday; March options expire tomorrow at the close
·         July-Dec corn spread trading over 80+ again this morning after trading lower end of recent range; Yesterday’s rally limited to old crop contracts as Dec struggles due to perception of a high acreage number from USDA next month
 
 
There is no real reason to believe the corn market breaks out of its recent range this week. A wedge formation (pictured on next page) is forming on the charts, indicating that some sort of breakout may occur in the coming weeks. New crop soybeans are drastically overbought (pictured next page). Soybean growers should initiate some sort of option strategy to set a floor on 25% of their crop this week. Beans may have a bullish fundamental outlook when considering the possibility of a low acreage number; however it’s tough to very bullish beans if you’re very bearish corn for the same reason (acreage). Call the office for specifics.  
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 

Traders Look for Bearish Tone from USDA Outlook Meeting

Feb 22, 2012

 

·         Grains lower overnight led by soybeans, which were the only market able to finish higher during yesterday’s whipsaw trading session
·         Weather issues in South American now on the backburner, as most sources agree that crop conditions there have "stabilized" after recent rains
·         Japan has recently stepped up US feed corn purchases according to sources, some believe as much as 1.8mmt has been sold for April-June period; Delays in shipments from Ukraine are to blame for increase in demand for US grain
·         Looming corn acreage number pressuring grains early this week; Spread action in corn is notable, old crop contracts vs. December fell drastically yesterday
·         Outsides slightly negative this morning, US$ higher with crude and equities marginally lower
·         Many believe USDA’s outlook meeting will focus on increase in spring plantings and growing ending stocks in 2012
·         First Notice Day for March grain futures is next Wednesday; March options expire at the close on Friday
 
Corn and wheat remain range bound as soybeans continue their recent uptrend. Beans are clearly trying to "buy back" some acreage at the last minute; recent export sales also helping the bull cause in beans. Most technicians looking at the corn market as a neutral affair. New crop soybeans are drastically overbought as far as charts are concerned, however we wouldn’t want to be short head into a potentially explosive acreage report in March. Support in May corn at 6.28 and 6.26. Producers, feel free to call the office to learn more about hedge strategies for new crop corn and soybeans.    
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438

Corn and Wheat Drop, Beans Hold Together

Feb 21, 2012

 

·         Corn and wheat markets down sharply overnight while soybeans hold to trade near unch; Terms of a 2nd Greek bailout package agreed to overnight, however an initial rally in the Euro has faded drastically
·         Weekend weather in S. American was mostly within expectations; Short-term dryness mostly alleviated in Argentina, a few more storms expected in 10-day period; Storms also return to Brazil and Paraguay this week
·         Crude oil trading $1+ higher near $105, metals also higher across the board
·         USDA hosts annual Outlook Conference on Feb 23 and 24; Baseline projections were issues last week (last year, baseline acreage projections matched projections given at outlook meetings)
·         Major Chinese corn and soybean areas preparing for possible drought during the spring planting period; rainfall in the northeast has been 30-80% less than average
 
In association with Indiana Grain Co., we held out first annual "Trade the Farm" seminar on Friday in Demotte, IN. We were fortunate to have a wide ranging demographic of producers from all over the Corn Belt in attendance. I feel as if we did a pretty good job of presenting producers with new ideas about trading, marketing, technology, and social networking among other things.
 Like most producers in the US, many in attendance were extremely concerned about new crop corn prices. Both I and the other hosts of "Trade the Farm" made one thing very clear: Nobody can predict where these prices will be in 1 month, 6 months, or a year. It is our opinion that analysts and newsletters will not save a farm operation with their predictions or bias. 
It is my job to point out opportunities in the market and provide producers with the best information and technology available. December corn is trading near $5.65 this morning. The December $5.60 PUT options are trading near 53 cents per bushel. Volatility levels are low, meaning that the options are actually fairly inexpensive relative to where they could be trading. Corn growers can set a floor in Dec contract near $5.07 this morning without having any margin risk. If you choose to sell a call against your PUT, you can raise that floor significantly, depending on how low you’d like your price ceiling to be. Don’t hesitate to call or email me at the trade desk any time for quotes on options or option spreads.       
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 

Mostly Lower Overnight, US$ Rallies...

Feb 16, 2012

 

·         Grains mixed overnight with soybean lower across the board, corn and wheat mixed; Corn closing below key support at 6.28 yesterday, making a new 3-week low; Some estimate that over 100k new longs came into the market during this timeframe, all of which are now “underwater” on their positions
·         Recent soybean strength a precursor to Chinese purchase yesterday; China inked deal to buy 8.6mmt of US beans and are expected to purchase even more in the following days (spread traders, not action in X12-N13 spread as of late)
·         Deal with Argentina will allow China to purchase corn from them for the first time ever, providing some competition for the US
·         Rainfall deficits since the end of Jan are between 3.75” and 5.5” across much of Brazil and Paraguay according to our lead forecaster; More heat and little rainfall to continue through Monday
·         6.12-6.15 area next major support for March corn; Many technicians turning negative after yesterday’s weak close; N-Z corn spreading working on downside breakout this morning, trading near +71 after sitting in a range from +75-85 for a couple of weeks
·         Wheat follows corn, no further analysis needed (we believe that wheat will gain significantly on corn at some point in the not-so-near future, timing will be key)
·         S. Korea buys 3 cargoes of US corn totaling 210,000mt for May/June
 
 
New crop soybean vs. corn spreads have moved drastically higher over the past couple of weeks, leaving many wondering what type of impact the ratio change may have on acreage. Traders seem intent on buying some acreage back for beans, although most still believe farmers plant 94+ million corn acres. The reality of the situation is that spring weather patterns may have just as much to do with acreage allocation as the recent move in price ratios. A dry spring and early planting would certainly result in more corn acreage while a slow, wet planting season would result in more beans, which can be planted later. There is definitely more than one piece to this puzzle. Seasonal trend follow look for some weakness during this timeframe ahead of the standard seasonal spring rally in March/April. Bulls beware today as the US$ rallies and outside commodities show weakness.
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 

 

Beans Sharply Higher, Corn/Wheat Up Slightly...

Feb 15, 2012

 

·         Soybeans sharply higher overnight while corn and wheat reluctantly follow along; Beans influenced by S. American weather and rumors of China demand
·         China Vice President in Iowa today; Visit designed to demonstrate China’s importance to the US Farm Belt; Chinese trade delegation expected to sign agreements to buy US soybeans in Des Moines; Last year’s delegation signed a deal to buy more than 11mmt, which was the largest ever one-off sale at the time; Today’s expected to be much smaller
·         China Central Bank believes Euro debt issues can be solved, China will expand investments EU
·         China soybean imports likely to be down 14% in Feb according gov’t sources there; China likely to import 3.97mmt this month
·         Cattle futures hit new all-time high yesterday, Feb cattle trading up to $126.90; Nearby feeders also shooting higher with the march contract trading above $156.00
·         Soybeans gaining sharply on corn during last several session; SX – 2CZ up over 70 cents since the last trading day in January (chart on next page); Beans aggressively trying to win back some acreage; the “battle” continues
·         Daily Technical Numbers                    Support                        Resistance
o   Corn (March)                          6.28, 6.14                    6.40, 6.43
o   Soybeans (March)                   12.50, 12.45                12.62, 12.75
o   Wheat (March)                       6.28, 6.14                    6.43, 6.53
 
 
Soybean strength has been the saving grace for corn and wheat bulls this week. Corn still looks like it wants to at least test last week’s lows near 6.28/March. Big open interest in March calls above the market may keep a lid on corn until next Friday. Open interest in corn has increased by 87,000 contracts in the last 3 weeks, while the market has traded a tight range from 6.27 to 6.52. A breakout of this range, to the downside especially, could result in massive liquidation from new longs. Fundamentally, a large acreage number at the end of March is really weighing on the market as old crop stocks remain adequate for the time being. Dec corn will remain the weak link until we know more about the ’12 crop.   
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438

Mixed Overnight, Corn Drags while Beans Hold Their Ground

Feb 14, 2012

 

·         Grains mixed overnight with soybeans showing continued strength; Beans clearly in the process of "buying acres" from corn over the past several sessions
·         Corn market relatively weak as traders expect massive planting this spring; Weather and price action will have a lot to do with the ultimate allocation
·         Dry Brazil weather has been the scapegoat for strength in soybeans, however a combination of soy vs. corn spreading and possibly some Chinese buying could have something to do with the rally
·         US$ up slightly; Crude trading above $101 after yesterday’s globex debacle (electronic trading of crude was halted for an extended period of time yesterday afternoon)
·         USDA released its 10 year baseline projections yesterday; ’12 corn acreage seen at 94mil, soybean acreage seen at 74mil; Most traders don’t take much stock in these early numbers which are used for long-term planning purposes; USDA sees corn stocks doubling to 1.6bil/bu by next summer according to baseline projections
·         USDA sees China corn demand at 16mmt by 2020-2021 compared with just 3mmt this year
·         Some traders discussing increasing dryness in some areas of the corn belt, which may lead to early planting of corn and possibly more acreage
 
Soybeans are clearly the leader of the grain complex the last few days. Corn seems reluctant to move higher, but it’s tough to keep a market down when its main competition rallies 25 cents in a day. We would love to see a rally in new crop corn/soy contracts especially as we head towards planting, however the Dec ’12 corn has a lot working against it. A bearish acreage surprise on March 30th could spell trouble for corn producers across N. America. We don’t like either side of the market today, but would like to wait for a break in soybeans to the $12.38-12.40 area in the March contract before taking a shot at the long side.     
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 

Up Overnight on Greek Hopes, Led by Wheat/Beans

Feb 13, 2012

 

·         More hopes that Greece can avoid a default over the weekend after lawmakers passed as austerity bill to secure a bailout
·         Grains higher overnight led by soybeans, which traded higher volume than corn last night; March soybeans trading down to 12.15 on Friday before rallying to close marginally higher on the day
·         Gap left on the March soybean chart at 12.30 ¾ overnight
·         Corn struggling to keep pace with wheat and soy markets; March contract to 6.38 resistance overnight and is holding its ground for the time being
·         Soybeans gaining sharply on corn in new crop ’12 contract in recent session; Traders now "selling back" corn acreage in order to buy bean acres? (Soy vs. Corn 2x1 on next page)
·         Trade remains concerned over weather issues in S. Brazil and Parana; Cold temps in E. Europe also a concern to wheat traders in particular
·         US$ lower this morning on Euro strength; Riots in Athens and all around Greece continue to start the week
·         USDA 10-year baseline projections to be released today; Outlook Forum is Feb 23-24
·         US HRW and SRW wheat trading at discount to corn in Midwest, which many believe will result in increase in feed wheat demand
·         Australian wheat exports to China may double this year according to Rabobank
·         Reuters article regarding high fertilizer prices and farmers who have not yet secured supplies
 
We’ll use the 6.38-6.39 area as our upside pivot point today in March corn. A close above this level would likely have some shorts running for the door. Support at 6.28 held last week; A penetration of this level today or tomorrow would likely result in another leg down. Last week’s USDA report was neutral, which in our view is bearish to market action…especially while rallying from recent lows. Our view on the corn market is neutral with a bias to the downside. Last week’s report was not food for the bull by any stretch of the imagination. March soybean to look poised to revisit resistance in the 1245 to 1250 area this week. Some suspect that China has become involved in the beans on the recent break. Producers: Take a look at re-owning cash corn sold pre-report on a break this week. 
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 

Lower Overnight after Disappointing Report Day Action

Feb 10, 2012

 

·         Grains lower overnight after yesterday’s back and forth trade; March corn cleaning out buy stops above 6.50 early yesterday before collapsing to close lower
·         March soybeans showing a similar action yesterday, cleaning out stops above 12.44 ¾ before breaking to close lower; We would describe yesterday’s USDA report as being neutral to slightly bearish, as a neutral report is generally viewed as negative
·         Volatility in March corn and soybeans dropping as much as 4% on yesterday’s report
·         Old vs. new crop corn spreads backing off yesterday and again overnight after rallying early in yesterday’s session; Spread action can be a good indicator of market sentiment in general
·         Freezing weather posing problems for grain producers in parts of E. Europe; Winter grain in Ukraine areas could see major setbacks
 
Yesterday’s USDA report did little to convince us of market direction, one way or the other. Our best guess that the corn and soy markets stay range-bound until more is known about spring weather and acreage allocation. We wouldn’t be surprise to see South American production numbers drop even further (big crops get bigger, small crops get smaller). March is a big month for USDA reports. Crop production on the 9th, Grain Stocks/Prospective Plantings on the 30th. Hedgers should take a serious look at new crop corn and soybean contracts. Despite all the market chatter, prices this year will be most heavily influenced by weather, barring any huge surprise in the acreage numbers. Most studies have confirmed that per acre, planting corn is a "lay up" for Midwest producers. Risk for corn producers is a high acreage number combined with good weather this spring/summer. Everyone have a great weekend!
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 

Sell Cash Corn Ahead of Tomorrow's Report?

Feb 08, 2012

 

·         Grain up overnight after a lackluster session yesterday; Traders look to square positions ahead of tomorrow’s USDA Crop Production Report
·         In general, traders looking for a  “friendly” report tomorrow for corn, soybeans and wheat; Pre-report estimates on following pages
·         Reuters poll of 24 analysts showed average estimate for ’12 corn acreage at 94.2 million vs. 91.9 last year; Soybean acreage estimated at 75.3 million vs. 75.0 in ‘11
·         March soybeans trading up to major resistance at 12.44 ¾ overnight, now a double top;  Many technicians looking for a penetration of this level
·         Outsides mostly mixed today; Currencies/equities flat, crude slightly higher
·         US House Committee approved a bill on Tuesday seeking to block sales of a higher ethanol blend in motor fuel until more safety tests have been completed; EPA and National Academies would administer tests
·         Opening calls higher across the board
 
Producers may want to use today’s higher open to unload some old-crop cash grain, corn especially, ahead of tomorrow’s report. There is a tremendous amount of risk in holding cash grain: Futures are overbought and the basis market is strong. A simultaneous weakening of both markets is possible. A “limit down” event tomorrow combined with weakening basis could find holders of cash corn losing 50+ cents per bushel in just minutes. Option volatility is still relatively low; May 650 calls can be owned near 32-33 cents today. The risk in owning those calls against cash sales is far less than the risk associated with owning cash corn. This business is about protecting profits and managing risk. Do what makes sense ahead of tomorrow.  I hope corn goes back to $7, too. Hope in one hand…
 
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 

Lower Overnight, Acreage Talk Heats Up...

Feb 07, 2012

Regarding the 2012 acreage situation, we are not sold on 94+ million acres of corn just yet. In thenew crop contracts, soybeans have gained on corn significantly in recent weeks. Still, the economics of planting corn beat soybeans hands down from a profit-per-acre perspective. In central Illinois, its estimated that farmers may profit as much as $578/acre according to a University of Illinois study. Worst case scenario, according to the study, results in $467/acre for corn versus a best-case scenario of $425/acre for soybeans. Price ratios still have the chance to change all of this; however most farmers have made or are very close to making their final decisions regarding acreage allocation. Corn-on-corn has not necessarily been a great endeavor for many producers the last 2 years. In fact, many farmers in the WCB in particular have had less than stellar experiences. Some producers we’ve talked to plan on returning to normal rotations this year because of the poor yields, which did have more to do with weather than anything. Corn acres will increase from last year; however we don’t believe that 94+ million are “in the bag” just yet.

As always, call the office with questions or concerns.

Regards,

Joe Vaclavik

(312) 462-4438

 

Mixed Overnight; China Interested in U.S. Beans?

Feb 06, 2012

 

·         Grains mixed to higher overnight, led again by the soybean complex; outside market mostly negative for grains with US$ higher, crude/equities lower
·         USDA to release Feb Crop Production report on Thursday; Pre-report estimates in following pages
·         Most analysts looking at China demand as reason for recent rally in soy market; Drought issues in S. America may have Chinese buyers taking a bigger interest in US beans
·         China boosted imports of ag products in 2011, with the farm trade deficit rising 47.4% from 2010 as their production fell short of demand
·         No major changes to SAM weather to start the week
·         Corn spreads have calmed down after July/Dec traded into the mid 80s during the last couple of weeks, July/Dec currently traded near +76
·         CME Group planning to take steps to set up an insurance fund for farmers ranchers, the proposed fund may include $100,000,000 and will insure every farm/ranch account for $25,000; Details to follow
 
Traders should spend most of the week preparing for Thursday report from the USDA. Look for a pop in option volatility tomorrow and Wednesday. We don’t really have an opinion on the report one way or the other. Some analysts now questioning whether or not current corn vs. soybean ratios in the new crop ’12 contracts will result in the massive corn acreage many have predicted. In our opinion, any corn acreage number under 94.5 million at the end of March would put Dec corn back near $6.50. Farmers around the country are looking for a move near $6/Dec futures to start hedging/pricing a significant portion of this coming year’s crop.   Old crop corn supplies still up for debate as many questions USDA estimates. We look for a two-sided trade today with an upside bias. 
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik

(312) 462-4438    

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