Beans Liquidate Ahead of Tomorrow's Report
May 09, 2012
· Grains led lower by soybeans overnight; Spec money clearly flowing out of the soy complex, set off by last week’s key reversal in the July bean contract; Despite continued China interest in US beans, the market has been long overdue for a significant correction
· Corn vs. soybean spreads rebounding sharply during the last several sessions; Many believe that new crop soybean acreage could be sharply higher than the March prospective plantings number
· Weather patterns continue to be favorable for producers across the Corn Belt; Some small pockets will need to replant corn due to excess rains, but conditions on the whole are very good
· Macro data has been mostly bearish for grains; Equities trading well off recent highs while US$ rallies on EU concerns; Crude oil trading solidly below $100 with gold below 1600; Key CRB index falling sharply
· Due to lagging cattle prices and lower crude, some now questioning domestic demand for corn via both ethanol and feed buyers
· USDA to release May Crop Production report tomorrow morning, will include first look at new crop balance sheets; Traders looking for new crop corn carryout near 1.7bil/bu, most look for a yield estimate at 165bpa or higher; New crop soybean carryout estimated at a tight 164mil/bu
· Opening calls are lower across the board; Some look for more liquidation in the soy complex ahead of tomorrow’s report; December corn now trading about 11 cents removed from recent lows
We look for a continued correction in corn vs. soybean spreads. Based on several different sources, we believe that soybeans will gain significant acreage from the March Prospective Plantings to the June Acreage reports.
The old crop corn situation is clearly tight, given the recent action in the May contract. The USDA has been reluctant to lower corn carryout to this point, however a bullish surprise could be in order on future reports. A projected new crop corn carryout near 1.7bil/bu is an enormous weight on price action despite old crop tightness. Without a significant weather threat this summer, we believe that any rally will be difficult to sustain.
As always, call the office with questions or concerns.