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.
Tuesday Morning Grain Update
Nov 20, 2012
Soybeans are weak to start the day while corn and wheat are marginally higher. Of course, there were more rumors yesterday of Chinese interest in US soybeans for export this week. Headed into 2013, we believe that much of the "big money" in these markets will be on the defensive given the uncertain future of US tax code and regulations. Every type of tax is on the table for negotiation when the Bush Tax Cuts expire on January 1st. The capital gains tax is what affects banks, hedge funds, and traders of these markets most directly. If there is a hint that these rates could increase after the first of the year, many of these traders will look to cover positions now in order to capitalize on a tax rate that is possibly more favorable than future rates. Commodities that are near the upper end of recent ranges probably have the most to lose, as there is a greater likelihood that index funds in particular may want to lighten the load. As far as the grain markets are concerned, the corn market is probably the most vulnerable given that a tax increase is in the cards. Non-commercials held a long position of nearly 250,000 contracts in the corn market as of November 13th.
The USDA released their Crop Progress report yesterday after the close. Winter wheat ratings fell again, now rated 34% good-excellent, down 2% from last week. 24% of the crop is rated poor to very poor, up 2% on the week. 42% of the crop is rated fair. Both the good-excellent ratings and the poor-very poor rating are the worst on record for this point in the marketing year.
According to sources in Brazil, the soybean crop there is 67% planted up from 53% last week. Most agree that South American grain and oilseed producers are off to a "good enough" start and that the potential for a big crop remains intact. Well followed crop scout Cordonnier kept his estimates for Brazil/Argentina corn and soybean production unchanged this week.
Export Sales will be delayed until Friday morning due to the Thanksgiving holiday. The markets will be open a full day on Wednesday and will not reopen until Friday morning at 9:30am CST. The markets will close early at 12:00pm CST on Friday, which will also coincide with the expiration of December options.
We look for a choppy, holiday type trade for the remainder of the week. We wouldn’t be surprised to see some more action during the last few weeks of the year given the uncertainty regarding tax code ahead of the New Year. The wheat market has been unable to rally on almost exclusively bullish news for several weeks now. This is generally a strong indicator of a bear market. The future of the soybean market is with South America. Producers here in the US should be turning their attention to the 2013 corn, soybean and wheat crops from a marketing standpoint. Now is the time to examine margins, break-evens, input costs, etc.
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