Aug 29, 2014
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The Hueber Report

RSS By: Dan Hueber

The Hueber Report is a grain marketing advisory service and brokerage firm that places the highest importance on risk management and profitable farming.

Chicken Little Scenario?

Aug 29, 2014



Usually when I get up in the morning I will check the electronic versions of a couple newspapers to see what we could be greeted with in the markets. When I clicked on the Wall Street Journal this morning, the first headline that I saw stated "Russia Invades Ukraine."  That has since been replaced with a "Putin Lashes Out at Kiev" and while that still suggests a situation in flux with tensions running high it is certainly something less than an invasion.  As you can imagine my first reaction was to think that this must have really touched off buying in the wheat market but upon looking at the CME quotes, I found that was really not the case either.  Prices were higher but certainly not any kind of panic short covering.  Could we have a "Chicken Little" scenario here where the trade has heard predictions about possible invasions and disruption of shipping in the Black Sea so often that they have become somewhat jaded to the news?

All that said, as I have commented recently the wheat market appears to have been in a foundation-building pattern for the past 7 to 8 weeks and we are now pressing to and through what has been solid resistance zones.  I would suspect that with the long weekend ahead of us and uncertainty around the world, not only with Russia/Ukraine but also the ongoing dryness in Australia, we could see additional short covering into the close.  If correct and particularly if we can finish above the 5.71/5.72 level in December futures we should have room for additional strength after the weekend.  Keep in perspective though, US wheat is already not competitive for most would-be buyers and forcing prices higher would not help that in the least bit.  I suspect the most we could look for without a "real" problem developing would be another 20 cents or so to the upside. 


Yesterday the corn market was able to ride higher on the coat tails of the wheat market but we must have hit a bump along the road last night and fallen off as that strength has not been able to carry-through into this morning.   The rally did manage to push December futures back against resistance at the 3.70 mark but with the fundamental picture looking overwhelmingly bearish, we are going to need something more than wheat short covering to lift corn prices higher.

Rains are expected to continue falling across much of the upper Midwest through the weekend, which should weigh on prices through the balance of the day.  Markets do close at the normal time today but will not reopen until Tuesday morning so it is difficult to expect much in the way of new positions outside of some possible weekend pre-hedging from the south. Yield reports from the southern states continue to be outstanding and while that by no means assures the same once the harvest pushes north, the trade will likely assume that to be the case.

As I commented yesterday, there is a seasonal tendency for the corn market to turn south after the Labor Day weekend, particularly in large crop years and without and unexpected event; that would appear likely for this season.  There is a possibility that prices could remain range-bound into the September 11th report but I suspect that as private estimates and guesses begin to roll in ahead of that number, it will become increasingly difficult for the foundation to hold. 


November beans have been able to build a touch on the strength that was posted yesterday but at this point have only been able to almost reach back against last weeks lows at 10.35.  I guess in light generally good weather that we have experienced during the month of August it is a victory of sorts that prices have not fallen further but at current levels, we will still have given up around 60 cents and will be trading at the lowest level for a November contract since September 2010. 

As we witnessed again yesterday morning on the sales report, China continues to be a large purchaser of new beans and this along with the ongoing tight nearby situation would appear be helping this market from really pushing over the edge.  Realistically, we may not see that happen at least until we have a better handle in the next South American crop.  China most specifically has just experienced two quite challenging years of bean imports with logistical and well as monetary issues creating problems.  I believe this has somewhat masked the reality that world ending stocks of beans have continued to grow for the past four years and are projected to set a new record in both raw quantity and when measured as a stocks to usage ratio.  Without a problem in the Southern Hemisphere this season, I cannot help but think this large supply will come to roost on bean prices.

As with corn and wheat, I would not look for much fresh trade today but if we have not developed any new problems through this long weekend, it would appear we could have a difficult time holding above the 10 level for much longer.


How long can you hold those arms out there?

Aug 28, 2014



It should come as a surprise to no one but tensions and fighting have increased once again in Ukraine and helped spur buying overnight in the wheat market.  Kiev has claimed that Russian troops have entered their territory and captured several villages but other news reports that I have read indicate this has been a counter offensive by the separatists.  Regardless, with the trade already quite short in this market and a long weekend looming ahead it has been enough to entice some of the bears to the sidelines.

Also providing a little support this morning is a short-term dry forecast in the wheat growing regions of Australia.  Unless we see the longer-range forecasts change this should have little effect on their crop prospects but when you add this to the other concerns from the Black Sea region, some traders will opt to error to the cautious side. 

On the other side of the ledger is Russia.  Granted, they play significantly into the situation with Ukraine but estimates for their crop potential continue to grow.  More analysts are joining the crowd that believes the total wheat crop will be in excess of 60 MMT.  The last USDA report has them at 59.

Wheat exports sales were uneventful and right in the middle of trade expectations at 403,600 MT or 14.8 million bushels.  The top purchasers were Brazil at 94k MT, Nigeria at 93.7k MT and Japan at 89k MT.

The initial strength overnight in the wheat did push us into key overhead resistance but prices have cooled as we came into the daylight.  As I have commented previously, I believe wheat has absorbed and priced in much of the negative supply information and with the speculative trade leaning to the short side, we could be poised for corrective rallies at anytime.  I am not sure if the current news is enough to stimulate an extended run but will be watching closely to see if we can actually poke through the upper side of the range after the long weekend ahead.  


The corn market has experienced a little two-sided action overnight and remains in a holding pattern.  This very well could extend through the upcoming long-weekend but I expect to see us move out of the range after that and they way things stack up right now, it is difficult to imagine that being to the upper side.  Early yield reports out of the south continue to be outstanding and it I have to imagine the trade will begin factoring in higher yields as we work out to the September 11th crop production and supply/demand estimates. 

As we are right on the cusp of wrapping up the end of the marketing year, exports sales for this crop year reflect a balancing between old and new.  As such, we registered a negative 32,700 MT or -1.3 million bushels.  This places year to date sales at 1.9155 billion bushels, just below the targeted 1.92 billion.  Sales for the 2014/15-crop year were towards the upper end of the estimates but nothing to write home about at 695,600 MT or 27.4 million bushels.  Top purchasers were Columbia at 140.9k MT, South Korea at 125k MT and Costa Rica with 120.5k MT. 

With the temperature forecast for the next 30 days predicting normal to above normal temperatures, little happening in the export scene, funds still long in the corn and promising early yield reports, it would seem that it will be increasingly difficult to see corn continue to hold this sideways pattern.  I just saw a yield update out of central Illinois reporting a range of 230 to 270 b/p/a.  As my associate Jake Wiener likes to say, the longer you have to hold your arms outstretched, the more likely you are to be come fatigued and eventually have to let them drop. Without a little assistance to prop up the arms of this corn market, they could soon give out. 


The pattern in the bean market since July has been to drop into lower lows and then just track a bit sideways for a bit before grinding lower once again.  That appears to be the case this past week as November futures pushed through 10.35 and reached the 10.20 level only to move flat from there.  The bean bull has never given up easily this year. 

For the second week in a row and of course the second to last week of the marketing year, we posted a negative sales number for the 2013/14 crop.  This time the number was -62,800 MT or -2.3 million bushels.  This still leaves us with sales of 1.691 billion bushels, which is 51 million above the USDA target.  2014/15 sales were down 9% for the week but still solid at 1,290,800 MT or 47.4 million bushels.  Just over 50% of these sales were to China who took 655k MT followed by Vietnam at 112.2k MT and unknown destinations at 96k MT.

As with the corn market, with no serious weather threats on the horizon, increasing harvest activity and very solid yield estimates it is difficult to imagine that we will not see prices erode further as we move into the month of September.  That said, after spending more than 35 years in this business I know that when everything looks obvious and one-sided it is time to be in the lookout for an unexpected event so you are not blindsided. That said as it stands right now, the path of lease resistance remains lower. 

How long can the floor hold this weight?

Aug 27, 2014



It seems that I am having to scratch a little harder each day to uncover fresh news for the markets.  As expected the Egyptian wheat tender went to Russia and Romania with no U.S. wheat even offered due to the fact we would not have been competitive anyway.  Wet conditions continue to hamper harvest of the spring crop but at this point, the market does not appear to be overly concerned.  On the opposite side of the world, Australia has continued to see increased rainfall which has improved crop prospects "down under" with trade estimate for production in the 23 to 27 MMT range compared with the last USDA number of 26.  Seeing this falls within existing numbers would say that it is not bearish per se but after the El Nino hype earlier this year and what has been drier than normal conditions, it removes a possible stimulus.  ABARE, who is the Australian counterpart to the USDA will release estimates on the 8th of September. 

Wheat was able to bounce away from base support once again yesterday, possibly aided by increased tensions and a few rumor again from Ukraine but that momentum has waned quickly this morning.   As I commented yesterday, there remains a possibility that we could see prices dip into lower lows in the days ahead but I would not expect a new leg lower.  For now I look for additional sideways activity.


Even though we were able to bounce away from support again yesterday, the corn market struggles and it would appear that it is only a matter of time before the impending harvest forces us into lower lows.  If there were any dry pockets in the upper Midwest it would appear they have pretty been eliminated or at least will be over the next 7 days and in parts of Iowa, Minnesota and Wisconsin, it would appear that we have swung the pendulum completely in the other direction.  While that could ultimately delay the maturity of the crop and could even hamper early harvest activity, it is always challenging to get markets overly excited about too much rain at any time of the year. 

While many southern states have been turning to beans to capture the nearby premium, corn harvest has been making progress.  As of last weekend it was estimated that Texas was 46% complete, Georgia 56%, Louisiana 38% and Mississippi 20% with a few others registering in the 1 to 10% range.  I wish I could provide solid yield data at this point but only have partial information.  That said, the numbers we continue to hear are impressive. 

The weekly ethanol number will be released later this morning and should be continue to remain solid with the profitability in the industry.

I am somewhat surprised and mildly impressed that the corn market has been able to hold on a well as it has to this point but as I commented initially, it would appear to only be a matter of time before the floor give way to the weight of record production.  We may be able to hold ground into the long weekend, but if nothing bullish materializes before next week, that should become increasingly difficulty to do.     


As with corn and wheat, beans were able to bounce from the early pressure yesterday and actually extended a little higher this morning but the onset of harvest and some exception bean yield reports has pretty well taken all the wind from the sails.  A few weeks ago I had heard reports that in the Delta, some beans were measuring near 100 b/p/a and I read overnight that 400 acres harvested in Mississippi came across the scale at 96 b/p/a.  Incredible. 

The possible counterbalance to this has been reports of Sudden Death Syndrome showing up in Indiana and Illinois. 

We have seen November beans reach the upper end of our price target at 10.20 and price could stabilize now into the long weekend.  Regardless, unless weather really take a turn for the worse and brings harvest to a halt, I suspect we will head down to at least the lower targets at 9.80 in September.


Bulls have to contend with a starvation diet

Aug 26, 2014



We have defensive overnight trade across the floor but understandably wheat appears to be the least impacted.  As I have noted previously, wheat should have already factored in much of the supply situation, at least on the domestic front, into current price levels but still lacks a demand stimulus to move us away from this base.  We do know that Egypt has set a tender for an unspecified amount for shipment between September 21st and 30th but in all likelihood, this will be filled from the Black Sea and/or Europe. 

There is a slight concern about the recent wet weather across the northern plains states and Canada hampering wheat harvest but the most recent updates do promise a drier pattern.  While conditions remain solid albeit slightly lower at 66% good to excellent as of the 24th, spring wheat harvest stood at only 27% complete compared with an average of 49% and even last year at 39%. 

Export inspections have been consistent over the past several weeks and last week we shipped 20.5 million bushels.  This is slightly ahead of the 10-week average of 17.8 million and brings the year to date total up to 210.88 million bushels.  To reach the USDA target of 925 million will now need to post a weekly average of 17.9 million bushels. 

I did read overnight that France may be shopping around for good quality wheat to blend with the moisture damaged crop they are dealing with this year.  While that does not change the overall supply situation around the world, and could very well come from Russia, it could provide a much needed demand spark for this market.


While still holding the 5-week base, corn was under pressure yesterday and has been again overnight with very little news to provide support. Recent moisture has turned excessive in some areas of the upper Midwest but any damage in low-lying areas would have occurred long ago so the benefits far outweigh any problems.  The trade should now be completely focused on the finishing touches of this crop with ideas of early frost fading quickly.

The weekly crop conditions showed improvement with all the recent moisture and the good/excellent categories actually picked up 1% and stand at 74% good/excellent. This is the best rating for this time of year since 1994 and normally, we would have already been seeing these numbers slip as the crop begins to mature.  Corn in the dough stage is slightly ahead of normal at 83% compared with the normal 78% but corn denting is 8% behind average at 35%.  Regardless, the trade will be fully expecting the yield numbers on the August and possibly the October reports to continue to move higher and I expect soon after the Labor Day weekend that will again be the topic du jour.  Dr. Cordonnier raised his corn estimate to 170 b/p/a yesterday. 

Corn exports were better than expectations, coming in at 43 million bushels.  This brings the year to date inspections up to 1.809 billion bushel with one week to go.  We will need to wait for the census number to determine how close we are to the 1.92 billion bushels target. 

Early yield reports in the south have been sparse, as it would appear farmers have attacked beans first to try and capture the inverse market and current premiums.  Reports out of Texas though, just say yields have been exceptional.

I suspect the corn market could stumble and bumble through the balance of this week traders may be reluctant to enter new positions in front of the end of the month and a long weekend.  That said, if we have found nothing positive to work with by the time trade starts again then in September, you have to believe the path of least resistance will be lower. 


As I commented under corn, we do have a little harvest activity kicking in to the south as farmers try and capture the inverse premium for nearby values.  Mississippi reports 2% harvested and Texas 8% and while yield numbers are sketchy, there have been reports of 70+.  Cordonnier raised his U.S. bean estimate ½ bushel yesterday to 45.5 which basically just keeps him at the same level as the USDA and the Pro Farmer tour. 

Bean rating slipped 1% last week but remain at a solid 70% good/excellent and like corn are at the highest rating for this time of year since 1994.  Beans setting pods climbed 7% to 90% leaving us 1% ahead of the normal pace.

We are just about to close out a very interesting to say the least, marketing year and we posted comparatively decent export sales for this next to the last week.  The total loaded was 5.3 million bushels, which compares with the 10-week average of 3.3 million and brings the year to date tally up to 1.593 billion bushels. We do not have to look back too many months and the debate was over if there would actually have been enough beans to make it until new crop arrives.  As I have stated many time before, when you know about a problem long-enough in advance there will most likely never be a problem.  That is exactly how a free market is supposed to function. 

While still quite grudgingly, November beans keep chipping away into lower ground and this morning we are finally reaching down to the upper end of the gap targets at the 10.20 level.  I continue to believe we should see this market settle out between 10.20 and 9.80 but could then move into a new congestion pattern at this price range. 


How long can the floor hold?

Aug 25, 2014



While many of you may have missed it last evening, there were technical issues at the CME and the overnight trade was suspended for four hours.  Actually, that may be better stated that the open of trade was delayed four hours (two for the grains).  It would appear that everything is operating normal at this point but you can imagine that it made for an uncomfortable 240 minutes for the hedgers around the world who needed to lay off risk. 

The wheat market has since witnessed a little two-sided action as we begin the week but appears to be semi-supportive.  Once again we find little fresh news with most of the stories I have read centering around the quality issues plaguing European and Ukraine wheat.  Ultimately this could provide an issue for millers in Europe and elsewhere but the biggest impact will most likely be felt in the corn market as we are confronted with a competitive feed product just when the world stocks of corn are climbing. 

The wheat market has been developing a congestion zone for the past 7 weeks now but has done nothing as of yet to suggest we are ready to move out of the range.  It would appear the biggest drag on this market right now is corn and the impending harvest of a record crop.  If wheat is to compete around the world as a feed grain, it will need to remain competitive in price to corn.  Longer term indicators are turning more positive though so it would appear that at least the worst of the pressure is out of the way for now. 


While there is undoubtedly a few dry pockets yet, it would appear that the majority of the corn belt received moisture over the past week.  It would seem that the only bullet that bulls may have left in the gun would be for the potential for an early frost.  I understand temperatures in Canada did press down against the freezing mark over the weekend and that the lower 48 will cool off again later this week but that does not constitute a killing freeze.  We had Drew Lerner of World Weather speak at our annual outlook meeting last week and at this point, he suggests that the region that could be at risk for an early frost would be more towards the middle latitudes of the growing region.  The Northern Plains and upper Midwestern states where we experienced delays this past spring are expected to see normal to later than normal frost dates. 

The Pro Farmer tour wrapped up last Friday and the tallies for corn were a bit higher than the USDA.  The average yield was estimated at 169.3 b/p/a producing a crop of 14.093 billion bushels.  If you recall, the August government estimate was 167.4 and 14.03 billion. 

As I mentioned under wheat, the quality issues with European and Ukraine wheat will most likely hang on the corn market in the weeks and months ahead.  Europe is already accustomed to feeding wheat but some of our traditional corn customers could easily be lured into doing the same this year.  Currently Black Sea wheat delivered into Asia costs around $240 a metric tonne compared with U.S. corn at $220.  While that would appear to give the competitive advantage to corn, keep in perspective that on average the protein level of wheat is 3% or so higher than corn so the price spread is probably closer to $233 vs. $220. 

Weekly export inspections should not hold any surprises nor should the weekly crop conditions/progress reports later today.  It is somewhat impressive that we have seen December corn remain in this 3.80/3.60 trading range for the past 5 weeks but with harvest already started in the south and the balance looming just around the corner, it would seem the odds are stacked against the potential to hold here indefinitely.  We should have additional yield data from some southern states in the state-by-state reports this evening.  There have already been reports of 180 to 200 corn coming from areas that have never dreamed of such yields. 


It seems agonizingly slow but new crop beans continue to chip away at the downside.  Overnight we have pressed into a slightly lower low for November futures making this the 4th week in a row in which we have been able to do so.  With the recent moisture that has passed through the majority of the Midwest, it is difficult for a bull to find much to shore up their cause. 

The Pro Farmer tour tally came in just a smidgen below the USDA.  They uncovered a yield of 45.35 b/p/a for production of 3.812 billion versus the government at 45.4 and 3.82 billion.  Regardless, these are still both record numbers.   I am not sure if we will find many yield numbers from the south as of yet but we have heard estimate from some calling for 100 bushels beans. 

This market continue to die a slow death and while percentage wise, I do not believe we have a tremendous amount of downside potential, possibly 6 to 10% in price, it will then become dependent on what happens in South America for the next move.  Another big crop down there and the picture turns decidedly unfriendly.

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