Oct 1, 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.

Food is the key but we have too much for now

Oct 01, 2014



The USDA had nothing positive to offer for the wheat market yesterday as both the 2014/15 production and the September 1st grain stocks figures were slightly higher than expectations.  Production for All Wheat came in at 2.035 billion bushels, which is 5 million above the last estimate and stocks totaled 1.914 billion vs. the trade estimate of 1.894.  The biggest negative that you can take away from the figure is that it provides an additional reminder that demand for US wheat is lagging.

While in the greater scheme, this next item may not amount to much as percentage of world volume but there was an interesting article on Reuters last night pertaining to ISIS and wheat production in Iraq and Syria.  Lets keep in perspective that the region we are talking about here is the ancient Fertile Crescent of Mesopotamia that we all have learned about at one time of the other and for literally millennia has been the bread basket of Northeastern Africa and Western Asia and has often been referred to as the cradle of civilization. It would appear that the ISIS rebels have very intentionally targeted farms and grain facilities, not for destruction but to secure food supplies.  This would certainly imply they very much understand the absolute need for adequate food supplies in a region and that this is a well thought out plan, unlike rebels in Ukraine.  One of the stories related in the article was from a farmer who fled his farm in northern Iraq.  ISIS contacted him with the offer to come back and take care of the farm on the condition that he convert to their brand of Islam and pay $500.  And we thought just having low prices was making farming difficult.  There is an old saying that the way to a man’s heart is through his stomach and I suspect this very much applies to a revolution as well.  While none of this should have any immediate market influence, I do think it bears watching as the challenge for that area could very well be in producing crops next year and the year after.  If you would like to read the entire article I have included the link below.



We already did a little more in depth coverage of the grain stocks report in our monthly newsletter so I will not go in to tremendous detail here but the USDA did uncover just a little more corn than the trade was anticipating.  September 1st inventory was estimated to be 1.236 billion bushels, which was around 50 million above the average guess and the last supply demand report.  In the greater scheme of things, not a significant difference but when the market psychology is already negative, it just adds a little more grease to the slide. 

We do have moisture forecast to come across the middle of the country now over the next few days with potential for 1" to 2" accumulations in some places.  There is potential for frost in Northern states this weekend, which could still tinge some crops but I would not anticipate that the market will pay too much attention.  It remains focused on the advance of harvest and the generally solid yield reports.

Most of the focus now though will be on the October 10th production estimate and the debate as to how much the USDA will bump yields.  We should begin seeing a number of estimates between now and the end of the week but I would tend to believe that the USDA will still be somewhat conservative yet this month.  First of all, that would be their normal approach for this time of year and second, with harvest only 12% complete as of the 29th, they certainly do not have a representative sample of yields just yet.  There have been some privates touting yields north of 180 but I tend to believe we will be in 175 to 177 realm.  As I pointed out on the monthly letter yesterday, a yield of 177 with no changes in harvested acreage or usage would give us an ending stocks figure close to 2.5 billion bushels. 

For now, it is little more than a waiting game as the market searches for a level of value which is hard to do when we still do not have all the pieces to the puzzle.  I continue to believe December corn will visit the 3.10 to 2.90 realm before this is all over and should probably wallow around in that range then through the balance of the year.


How markets react to news is usually a good gauge as to the health of the commodity and if correct, the bean reaction would indicate a very sick patient indeed.  September 1st bean inventory came in 38 million bushels below the trade estimates and while we did catch a slight bounce in the 10 to 15 minutes following the report, we turned back lower from there and into lower lows once again.  Note that at 91.96 million bushels, that was the lowest carryout for beans since the 1972/73-crop year when we ended up with only 60 million bushels and marks the lowest stocks to usage ratio that I have on records dating back to that year.  Of course, the reality is we made it to new crop and a record production at that, so this becomes little more than a footnote in the history books at this point.

To add insult to injury, I read overnight that Lanworth is now projecting that Argentina could produce a record 58.7 MMT of beans this year with the planting prospects they are looking at.  Last years production was 55 MMT. 

As with corn, the complete focus now is on harvest and the October 10th production report.  The rains forecast to move across the middle of the country this week should help shed the rest of the leave from the bean plants and should speed up the pace of harvest moving ahead.  Yield reports around the country have continued to be excellent so I imagine the trade will be looking for higher figures again next week.  We had a client in the office yesterday that had harvested a small patch of beans so he could plant wheat and even though almost 14% of the field had flooded out completely, it still yielded 52 b/p/a.  In the good areas the yield monitor registered over 70.  The moisture was 10.4% as well. 

In examples I put together in the monthly letter, I boosted bean yield another ½ bushel and cut the carry-in 38 million and without changing anything else this would produce an ending stocks figure of 483 million bushels.  It is pretty difficult to be anything but negative on beans right now.

November futures are approaching the 9.00 level here this morning and as I have pointed out previously, there is a historical base of support between 9.00 and 8.80 so it should be interesting to see if we can hold that range once again.  Considering how early we are in the harvest, the solid yields being reported and the overall negative psychology of commodities in general; I am fear that may not be the case.  


Another report to move beyond

Sep 30, 2014
It was nice to see that prices could actually rally and hold the gains for the close but not surprisingly, that strength did not extend into the overnight hours. We sit not only at the end of a month, but also the end of the calendar quarter and on top of that a report to be issued today and if all we can muster is one session of higher prices, the bears are entrenched indeed.  
Outside of the grain stocks and winter wheat estimates to be released at 11:00 this morning, there is little fresh news.  On the weekly updates the USDA reported that spring wheat harvest had reached the 94% complete mark, just 2% behind average and winter wheat planted remains ahead of normal and stands at 43%.  Emergence stands at 14% compared with 12% average. Export inspections were better than estimates coming through at 21.1 million bushels.  This was right at the 10-week average of 20.5 million bushels and brings the year to date tally up to 325.60 million.  We do have a little better lineup showing for tenders so exports sales could look better moving ahead.
As I have commented previously, the reports this morning should be largely overshadowed but the harvests news but there is always the possibility for a surprise popping up in some category. The average estimate for total wheat production stands at 2.033 billion bushels.  The September 1st stocks figure average estimate is 1.894 billion.  
I guess I should not scoff at any strength as one of these days it will begin to extend into something new but that little blip we saw in corn yesterday certainly did nothing to strike fear into the hearts of the bear.  We were not even quite able to push back to Friday’s highs let alone resistance that begins around 3.30 but there is always a possibility that we could still see a little more end of month/quarter profit taking into the close today.  Of course, that would probably require something positive from the grain stocks reports and I am not going to hold my breath for that. The average estimates for the 11:00 report range from 1.181 to 1.185 billion depending in the survey you want to use.  I would be surprised to see that figure come in higher than estimates but more on that another day. 
While not surprising, the overall crop development and by extension harvest continues to run behind average.  As of the 28th, NASS believes corn mature stands at 60% compared with an average of 70%.  The overall condition remains unchanged at 74% good/excellent, which in itself is amazing but somewhat meaningless at this point and harvest increased 5% to 12% complete, which is 11% behind the average pace.  For the three I states, Iowa was just 2% harvested compared with a normal 15%, Illinois at 14% vs. 34% and Indiana at 11% compared to the normal 21%.  
Export inspections were a bit dismal at 23.7 million bushels, which was below the lowest estimates.  The 10-week average is 37.2 million and year to date we have now loaded 134.44 million.  This means we need to average 33.7 million a week moving ahead to reach the 1.75 billion target. 
I spoke with a few farmers here in Northern Illinois yesterday who have begun a little early harvest and have been a bit disappointed with what they have found so far.  Granted, these are early varieties and the moisture is still a little high but what that have found was a good volume of grain but a slightly disappointing yield due to below average test weight.  This sampling is hardly large enough to be representative of the crop up here but as I have commented previously, in the travels I have done this summer, this region looked as poor, for lack of a better word, as any I have seen. 
There was an interesting story posted on Reuters overnight that said the government in China is planning to begin a media campaign in support of GMO’s.  Could it be that they are getting their inventory issues under control and are now looking towards the inevitable futures where they will need to be less finicky about imports?  Time will tell. 
We do have a few showers passing through this week and colder temperatures as well but assuming there are no surprises in the stocks figures, after today the focus should completely turn to harvest and I suspect we will be headed for the harvest lows during October. 
The rally in beans yesterday looked almost impressive in light of the time of year but when you consider we did not even quite reach back to the highs posted on Friday, not so much. Prices are a bit softer this morning but we have only surrendered a fraction of the gain so far. 
The rains that are to move across the Midwest this week should slow down harvest activity but a nice shower should help plants shed the last of their leaves.  As with corn, it is amazing that the weekly rating remain solid and in fact this week, the good/excellent rating was up 1% to 72%.  Plants dropping leaves did increase 14% to 69%, only a couple behind normal but beans harvested is 7% behind average at 10% complete. 
Exports inspections we very solid as beans are finally making their way to export facilities and we loaded 25.2 million bushels.   This bring us up to 54.76 million bushels for the year, which is actually 50% ahead of last year at this point but we do need to see the pace increase to 34.3 million per week to reach the USDA target of 1.7 billion. 

The average estimates for today’s grain stocks report is 130 million bushels with a range of guesses between 100 and 150 million.  As with corn, after today the focus returns to harvest weather, yields and estimates for the October 10th production estimates. 

Shorts a bit uncomfortable with reports just ahead

Sep 29, 2014




Wheat opened lower last night to begin this week of trade but quickly stabilized and climbed steadily in to the morning hours and has already pushed through the highs posted on Friday.  While too early to say if we can hold the gains it is encouraging to see a little control slipping through the fingers of the bear.

Possibly one of the reasons that shorts may have been quick to cover is the fact that according to the Commitments of Traders reports funds now hold a record short position.  While in and of itself that is not a positive, the question now is how do you bring in more sellers when the hull is pretty full and the boat is listing hard to one side?  As we have seen many times in the past, this kind of setup can produce nice short covering bounces. 

Over the weekend Russia reported that for the marketing year to date, which began on the July 1st they have exported 10.73 MMT of grain, which is a 26.6% increase over the previous year.  Of this total 9.216 MMT has been wheat.  It is interesting to note though that domestically in Russia, wheat prices have been climbing as exporters search for new product.  That is an encouraging step to help U.S. wheat become more competitive. 

Tomorrow will bring us the quarterly grain stocks numbers, which should carry more weight for wheat than corn and beans but I suspect it will be largely overshadowed by harvest news.  The average estimate for all wheat production is 2.037 billion bushels and the average estimate for the September 1st inventory is 1.88 billion.  Ideally we should see this market begin to reconstruct a base with sideways action through the month of October.


The corn market began the week with a dip into slightly lower lows but evidently found no additional selling and bounced back from there.  I suspect some of this may be nothing more than pre-stocks report short covering and is pretty typical of the action on this move.  Yes there have been the occasional big down days but as a whole corn just continues to edge into lower lows. 

As I have commented previously, I do not imagine that the quarterly grain stocks report tomorrow will turn out to be a big event as the trade is more focused on harvest related news but there is always potential for a surprise and I doubt that would be to the bullish side.  The average trade estimate for September 1st stocks is 1.185 billion bushels with a range of guesses between 1.02 to 1.35. 

Showers are expected to move across the Midwest by midweek but they are not forecast to linger so should not be much of a market influence. They will though usher in colder temperature and possible frost in some areas, which could still be a bit premature for some.  Unfortunately for those effected, it will probably create little more that a quality problem. 

There are no markets in China this week due to a holiday but realistically that would not be much of a factor for the corn market anyway.  The trade expects the U.S. harvest to have reached around 15% complete, which will still lag the normal pace but with the current weather outlook we should be playing catch-up rapidly.  We could see this market track semi-sideways between now and the October crop production report on the 10th but I continue to believe we will eventually take a dip down against the 3.00 level before finding a low.


November beans also dipped into a new lows for swing early last night but have returned to positive territory as well this morning.  About the most positive piece of information that I can see this morning is the fact that the dollar is a bit lower but I would not think that would really stimulate a tremendous amount of buying.

Planting is moving ahead in Brazil and they reported this morning that in the state of Parana 7% of the crop has been planted compared with just 2% last year.  This is the second largest bean producing state in that nation.  The largest, Mato Grasso, estimates that 2% of the projected 8.8 million hectares have been planted so far compared to 1% last year.

I still have not seen the specifics but China has now suspended the approval of two varieties of soybeans for import.  I understand though that these two are not widely produced in the United States, which could explain why the markets have not reacted much to the news. 

Funds actually reduced short positions in beans but still carry a huge short and may be electing to cash in a few chips before the report tomorrow and then again next week.  The estimate for the grain stocks report tomorrow has September 1st inventory at 126 million bushels with a range of 100 to 150 million.  


Weekend Commentary - Getting Better all the Time

Sep 28, 2014



"I’ve got to admit it’s getting better

A little better all the time"

No, I am not trying to become a lyricist. Many of you probably immediately recalled part of the refrain from the 1967 Beatles song aptly named "Getting Better".  I could not help but think of these words this week when the Commence Department revised the second quarter GDP higher by 4/10th of a percent to 4.6%.  This was the third revision of the second quarter number. It would appear that the economy, at least here in the United States, is getting better all the time.

We need to keep in perspective that part of the surge was very likely in response to the negative number posted during the first quarter.  I probably do not need to remind anyone, but the "winter that would never end" weighed heavily on consumer and business activity early this year and we posted a negative 2.1% reading for the quarter, the worst since emerging from the recession.   That said, many economists believe that the soon to end third quarter will produce gains in the 3 to 3.3% range. If correct, we will have marked the strongest stretch of economic growth since 2004/05. 

Probably as encouraging as anything in the number was where the growth was being generated.  Yes, consumer spending was up 2.5% for the quarter but that is that category that may have seen a kick from pent up demand. But it was the business activity that appeared most encouraging. Real nonresidential fixed investments were up 9.7% compared with just 1.6% in the first quarter, investments in nonresidential structures were up 12.6% compared with 2.9% in JFM and investment in equipment rose 11.2% compared with a decrease of 1% during the first three months.  Real exports of goods and services increased 11.1% compared with a decrease of 9.2%, of course a fairly dramatic 20% swing. This last category should be interesting to watch in future reports as we continue to see the dollar climb into higher highs for the year.  Regardless, these numbers would suggest that the business community has taken an increasingly positive outlook on future growth and is pumping up investments in buildings and equipment, which should translate into more jobs and potentially rising wages moving forward.

It is especially interesting to see this occur in face of the economic activity in the rest of the world.  The EU teeters on the edge of another recession with even the powerhouse, Germany, revising lower what were already dismal growth forecasts. Russia is moving backwards, Japan’s GDP contracted at an annualized 7.1% in the second quarter and China has been struggling with a dramatic slowdown in their growth.      

So as I began this letter, I have to admit it is getting better all the time.  The Federal Reserve will be winding down the bond buying program next month and it would appear that the U.S. economy is more than ready to stand on its own two feet.  Granted, we do not know how the world will react when interest rates begin moving higher sometime next year, but I suspect the biggest negative in that regards will be felt by equity traders.  It could be that one of the greatest risks of derailing recovery may not be another weather event but rather a political one.  Politicians have been eerily quiet and well behaved over the past six months or so as they jockey for the mid-term elections.  It is difficult to imagine that carrying on much beyond the 4th of November.  Unfortunately, there are some things that just don’t seem to get any better.


Bears continue to hold all the cards

Sep 26, 2014




With the exception of the U.S. Dollar that pushed to higher highs once again, yesterday turned out to a day for the bear.  Not only did we see pressure across many of the major commodity groups but the equity markets took it on the chin as well.  I rally cannot point to any specific piece of news that seemed to spark the additional exodus by longs but end of month trade could have been one of the culprits.

The weather outlook for the Canadian provinces is clear for next week, which should allow for rapid harvest progress.  As such weather concerns now shift to the Southern Hemisphere where there do not appear to be many issues either. I read that in Australia many of the major growing regions have received additional moisture this week.  Wet conditions have slowed Brazilian wheat harvest recently but crop ratings remain strong with limited quality concerns so far.  Independent Ag consultant firms in Brazil are predicting that wheat production for all of South America will be up almost 9% this year to 22.2 MMT.  This is of course the problem with wheat and  almost all commodities right now; everyone appears to be producing adequate to abundant crops.

Chicago wheat did press into new lows yesterday but did bounce back enough for the close to hold above the 5.70 level.  We are soft again overnight but continue to hold in that same range. As I have commented previously, there remains a possibility that we can still stab into lower lows but I do not believe they will be sustained.  We should be headed for weeks if not months of sideways action. 


Unless we post some type of late day rally, corn will have recorded another lower low this week but will also have posted one of the narrowest ranges in over a month.  Prices pushed lower immediately on Monday but have then really gone nowhere. This could be attributed to month end evening up and it could be the market is becoming tired of trading the same yield/supply news.  Regardless, this should be the 6th week in a row of lower closes and the lowest prices witnessed since 2009.

We do have a couple reports to work through over the next few days.  This afternoon will be the quarterly Hog and Pigs estimate and then on the 30th we will see the quarterly grain stocks. While the hog report should reflect larger farrowing intentions I cannot imagine that will be a big market mover come Monday and seeing there is nothing critical concerning current corn inventories, I suspect the stocks figures will become lost amongst yield talk. 

The recent weather forecast that I have seen keeps the Midwest warm and dry through the middle of next week but showers moving in from there.  For the upper Midwest, this could be more of a hamper on the bean harvest than corn.  By next weekend though, it sounds as if cold temperature will return with potential for frost in some areas once again.  While pretty close to normal dates at that point, in the Northern states where they got a late start on planting to begin with there remains potential for damage.  Unfortunately for them, I suspect all that would do would be to hurt quality and potentially raise their drying costs.

There remains a possibility that we could see prices track a bit sideways for the next week as we digest reports and harvest progress but I suspect any strength would be fleeting.  Ultimately, I continue to believe we have December futures headed back for the 2009 lows and the 3.10 to 2.90 zone. 


It would appear that bean futures will be visiting the 9.00 level sooner than later as the November contract extended into lower lows yesterday and again overnight.  A generally clear forecast through the middle of next week, an expanding harvest and of course very solid yield reports continue to drag prices lower.  While I cannot substantiate it just yet nor do I know how large a field, I heard reports of 100 bushels beans harvested in Illinois yesterday. 

Rains in central Brazil could slow down planting progress over the next week and I read an article that Asian rust was already showing up in some municipalities in Mato Grosso. I imagine this will be largely overlooked by the trade right now as the focus will be on our harvest.  That said, this is one of those items that we need to keep in the back of our minds as everyone expects big acres and big crops from Brazil this year. 

Just to add insult to injury, yesterday China announced that due to low public acceptance they were going to suspend the approval of a specific strain of GMO soybeans.  They actually did not specify which strain that was. I wonder if this means Cargill will have to begin another lawsuit against a seed company?

I continue to believe we have November beans headed for the 8.80 to 9.00 zone into October.  The big question right now concerns if that can hold the bottom end or not.  The next stop under there is sub-8.00.

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