Grain Markets Stabilize Overnight...
Jul 25, 2012
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The grain markets have stabilized and are trading higher this morning after two days of intense selling pressure. Forecasted rains across much of the Corn Belt this week were the catalyst that set off a barrage of fund liquidation on Monday and Tuesday. Overnight rainfall was slightly less than expected. Forecasters look for intense heat and dryness to return in the coming days. Most soybean contracts are more than $1 removed from Sunday night’s highs while corn is within 15 cents of the all-time highs. Corn has been able to hold together better than beans for a couple of different reasons. Firstly, most agree that the corn crop in many areas, especially in the east, will not be helped by rains this late in their maturity. Secondly, the average fund trader has a much smaller position in corn relative to their record long position in soybeans and substantial long in wheat. This means that the big traders have more to liquidate in beans/wheat when bearish news hits.
Smithfield, the world’s largest pork producers, will import corn from Brazil, according to this morning’s Wall Street Journal. It is very unusual to see US feeders buy feed grain from overseas; however this year’s drought and high grain prices have forced their hand. It has also been rumored that Tyson, the world’s largest chicken producer, would import corn from South America. This cannot be confirmed as traders await earnings numbers from Tyson. Corn at Brazilian ports can be bought for near $290 per metric ton compared with $345 at the US Gulf. The cost of shipping to the US is near $30-40 per ton, making the Brazil corn far more economical. In the vast majority of situations, prices of corn at Brazilian ports will be on-par with, if not cheaper than, corn at the Gulf.
Export Sales will be released tomorrow morning. August options for corn, soybeans, wheat, meal, oil, oats and rice expire on Friday. The USDA will release their August Crop Production report on Friday the 10th. A Reuters poll of grain analysts pegged the US corn yield at 130.8bpa vs. their estimate last week of 130.8bpa. The same group pegged the soybean yield at 38.5bpa vs. 39.0bpa last week. The Cropcast crop tour pegged 5 fields in Illinois at 101bpa; the same fields yielded 151bpa last year. The International Grains Council will update their global harvest forecast tomorrow. Early in July, the group increased their global grain harvest number to 917mmt, up from 913mmt previously.
Outside markets are mostly positive this morning with crude, equities and metals higher. US Dept of Commerce will release new home sales for June at 9:00am CST; EIA energy stocks will be released at 9:30am CST. Look for volatility in the grain markets to continue. We believe that corn has the potential to make new highs by the end of the week.
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