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.
Wednesday AM Grain Update
Dec 12, 2012
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.
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