Straits Grain

·         Grain market collapsing yesterday on rumors that China had cancelled or possibly deferred corn and soybean purchases from the US; Reuters story on Monday indicating that China had defaulted on or deferred coal on iron ore purchases; Several indicators point to weakening Chinese economy

·         Soybean making new lows for the recent move overnight; July contract now trading solidly below $14, Nov trading solidly below $13; Old vs. New spreads hold together despite flat price break

·         Wheat futures sharply lower again overnight; July wheat posting a textbook blow-off top on Sunday night, posting massive volume at the highs

·         Forecasters looking for increased rain chances next week, adding to pressure on corn market; Excessive heat still slated for this coming weekend

·         Greek situation remains uncertain, pressuring outside markets

·         USDA is seeking public opinion on whether or not it should change the release times of crop reports

·         Some confusion among country grain elevators regarding new extended grain hours; Some elevators confused as to which closing price, 1:15pm or 2pm, should be used for afternoon bids; Settlement prices are still based on price action at 1:15pm

·         Early estimates for 12/13 Brazil soy crop are much improved from this year’s crop; Reuters survey of panelists at Sao Paulo soy seminar showed average guess near 73.6mmt; Government expecting the 11/12 crop near 66.7mmt; Brazil is the world’s #2 soybean producers behind the United States

·         Some rains forecasted for Black Sea wheat areas, adding to pressure in wheat market yesterday/overnight; Hot/dry April was preceded by an unusually cold January/February; Many analyst looking for substantial declines in wheat crop there despite forecasted rains

 

Yesterday’s collapse occurred on a perfect storm of bearish news. Rumors of China cancellation along with increased chances of rain next week were too much for the markets to handle. Corn charts in particular still continue in loose downtrend. As we’ve said now for a few weeks, we believe the highs have been seen in the soybean market barring a significant weather threat. An almost guaranteed acreage increase here in the US combined with potentially large South American acreage this fall will be weights on the market.   

 

As always, call the office with questions or concerns.

Regards,

Joe Vaclavik

(312) 462-4438 / jvaclavik@straitsfinancial.com

·         Grains lower overnight led by wheat; Crop Progress yesterday afternoon seen as bearish; Most wheat contracts closing in the middle of a 40+ cent trading range yesterday, rejecting new highs; Noted spread unwinding seen in old vs. new crop contracts in both soybeans and corn

·         Crop Progress pegging corn 96% planted with a crop rating at 77% good-excellent; Soybeans 76% planted vs. 42% on average; Winter Wheat 3% harvested, rated 58% good-excellent; Spring Wheat 99% planted, rated 74% good-excellent

·         Forecasters looking for some rains in dry wheat areas of Russia, which may have added to pressure overnight; US slated for hot temps this weekend with scattered rains

·         Macro markets have been mostly negative; US$ mostly higher with crude down; Equities marginally higher today; US$ chart showing a bull flag pattern, trade above 82.00/June needed to confirm upside breakout

·         Wheat in Kansas, the largest wheat producing state, rated 43% good-excellent; 5^th straight week of rating declines; The KS crop has dropped 26% in the good-excellent category since April 15^th due to lack of rain and warm temps

·         Technicians looking for support in the 620 area in the July corn contract; Basis levels softening slightly yesterday

 

On an extended weather threat, we believe the December corn contract could test the 5.70 level. The majority of the recent rally has been short covering, as open interest has dropped. Any light interest in long positions from fund traders could easily push the market another 35 cents, in our opinion. Long term, we believe there is still significant potential for record corn yields this year. Most producers seem to be waiting for higher prices to extend coverage on new crop corn. The last couple of years have certainly conditioned some producers to wait on sales, which paid off in 2010 and 2011. 

We believe that November soybeans have seen the highs barring a significant weather issue. Acreage will likely increase 1+ million at a bare minimum, while many believe an increase of 2mil+ is likely. South American acreage will likely be enormous this fall due to high prices.

 

As always, call the office with questions or concerns.

 

Regards,

Joe Vaclavik

(312) 462-4438 / jvaclavik@straitsfinancial.com  

·         Grains mixed overnight; Old crop corn trading nearly 6.30 in the July contract this morning after posting lows in the 570s on Monday morning; Most of the spec longs have flushed out of the market, leaving room for significant upside based on extremely tight old crop supplies

·         Soybeans showing strength in old crop while November contract relatively soft; Old vs. new spreads trading to new highs yesterday

·         Wheat futures strong; Dryness in western wheat areas combined with some concerns in Russia inducing short covering

·         Corn exports came in at low end of analyst estimates yesterday

·         National Corn Growers Association asking regulators for 30 day waiting period prior to CME grain trading hours expansion

·         Some dryness emerging in areas of Corn Belt; Warm temps slated this weekend

·         Outside markets mixed this morning; Crude near unch with metals and equities higher; Currencies mostly flat

 

Fundamentally, nothing has changed in the corn market. Weather patterns are still mostly favorable while cash supplies remain tight. Technically, we believe that a good portion of long spec money was forced out late last week and early this week. The fact that many of these longs no longer populate the market opens the door for the rally that could have happened several weeks if not months ago. 

Old crop soybeans seem to have found some footing, however we believe that more downside is certainly possible in the November contract. Soybean acreage could increase as much as 2.5mil from March to final according to some sources. We can’t argue with this idea given the movement that occurred in the soybean vs. corn spreads from late November through last week.  

 

As always, call the office with questions or concerns.

 

Regards,

Joe Vaclavik

(312) 462-4438

·         Grains lower overnight led by struggling soybean market; Yesterday’s rally may have simply been a short-lived bounce during a much larger price correction

·         Corn prices sharply higher yesterday despite mostly bearish weather and crop progress that is moving along swiftly; Old crop supplies still remain a major issue as basis levels remain extremely strong

·         Traders exhibiting new concern regarding Euro Zone and Greece in particular; Euro currency has been soft to start this week

·         Crude oil trading in the $91-93 range this morning; June contract traded over $110 in late February

·         Old vs. New crop corn spreads holding together overnight; July-Nov soybeans rallied yesterday but traded against a significant downtrend line yesterday; More downside expected according to some chartists

·         China demand rumors floating around yesterday as cause for rally; Traders will look for sales announcements at 8am

·         Federal Reserve Bank of Chicago says farm land prices in IL, IA and IN were 19% in the first quarter vs. last year

·         Ag economist from KS State looking for 2.0-2.5 million additional soybean acres in the US vs. March planting intentions; Some believe double-crop bean acreage will be significant

·         Farmland values rose 19% in the first quarter in IL/IN/IA according to Chicago Fed; Non-irrigated land in KC Fed district rose 25%

·         Opening calls lower for corn, beans; Lower for wheat

 

We look for continued downside in soybeans and continued upside in corn vs. soybean spreads. It’s tough to disagree with the K-State agronomist who looks for an additional 2.0+ million soybean acres given recent price spike. 

Warm weather continues as May is expected to be 7^th consecutive month of warmer-than-average weather in IL, IA and IN. Conditions remain favorable for the time being; however unusual warmth in June or July could present a problem for corn growers in particular. Disappointing yields the last 2 years were mainly the result of hot temps.  

 

As always, call the office with questions or concerns.

 

Regards,

Joe Vaclavik

(312) 462-4438

·         Grain markets rally overnight; Technical bounce seen in beans while corn seems to have found some footing near current levels; Dec corn reluctant to move below $5 until we know more about the crop

·         Crop scout Cordonnier increased estimate for Brazil corn to 64.0mmt, up from previous 62.0mmt; All other SAM estimates left unchanged

·         Some traders discussing dryness in western wheat areas

·         Corn planting 87% complete (71% last week, 66% avg) according to USDA crop progress report yesterday; Soybean planting 46% complete (24% last week, 24% avg); Spring wheat 94% complete (84% last week, 64% avg); Winter wheat rated 60% good-excellent (63% last week, 47% avg)

·         Brazil grain analysts Celeres estimates soybean harvest at 99.5% complete; The group estimates that farmers have sold 83% of the crop vs. 80% last week and 63% on average

·         Rabobank issuing report indicating that China hog and pork prices will likely fall as much as 20% this summer vs. last summer

·         CME Group scheduled to begin 22 hour grain trade on May 21^st; Several industry groups and traders have urged CFTC to delay the expansion of hours

·         ICE exchange began trading grain contracts on Sunday night; Volumes were very low in corn, soybeans and wheat

·         Export Sales on Thursday morning; USDA June Crop Production on 6/12; Acreage and Quarterly Stocks on 6/29

·         Outside markets mostly quiet today, equities marginally higher with crude, gold and currencies near unch

 

We believe that upside in old crop corn is possible given recent flush out of longs. The bulls have been defeated and their money has been taken. Tightness in the cash market and phenomenally strong basis levels continue. Spreads remain inverted despite trading well removed from recent highs. New crop corn’s best chance for a move higher, barring a weather event, may be a push from old crop contracts. The average farmer is undersold from what we can gather, and selling opportunities may be few and far between.

Look to sell rallies in soybeans. We believe that further spec liquidation is in order. Balance sheets will likely change drastically in coming reports due to price moves. 

 

As always, call the office with questions or concerns.

Regards,

Joe Vaclavik

(312) 462-4438