Aug 21, 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.

Did the rain fall in all the right places?

Aug 21, 2014

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Wheat

We have a rain moving across the upper plains states into Minnesota, Wisconsin and into Northern Illinois this morning providing a nice drink to finish crop development in those areas.  It would appear that even north and northeastern Iowa is experiencing moisture overnight which is an area that has seen little precipitation over the last 30 days.  

The overall news is sparse again this morning with the biggest story at the moment being export sales and for wheat at least, it is difficult to use the word "big."  For the week ending August 14th we sold 209,200 MT of wheat or 7.69 million bushels.  This number was down 38% from the previous week and was 62% below the 4-week average.  The largest purchasers were the Philippines at 83.5k MT, Nigeria at 62.4k MT and Japan with 34.6k MT.  This brings the year to date sales up to 396,201,750 bushels, which lags the pace for this time last year by 26%. As we have noted numerous times, right now the Black Sea is the place to go for wheat. 

Stats Canada released updated production estimates this morning with no real surprises but the wheat number did line up closer to the lower estimate.  They currently project a total crop of 27.70 MMT, which is down just over 26% from a year ago.  Keep in perspective that last year was an exceptional crop.  The average production for the past 5 years has been 28.05 MMT, which is weighted heavily by 2013.

This market has been able to bounce just a touch in the overnight trade but this of course after testing the base of support yesterday.  I would still like to believe that we have pressed wheat far enough to the downside for the time being and with the funds already short that is will be difficult to attract much new selling.  That said, for now we lack a stimulus that could carry us back higher as well. 

Corn

The corn market has been stable overnight in face of the showers that are passing across the upper Midwest.  Northeastern Iowa remains a place of concern, as it would appear that they missed the overnight showers but the maps this morning look as if they are catching a drink.   

Exports sales were not quite as disappointing as wheat but certainly do not provide any excitement for the bull either.  For the 2013/14 marketing year we sold 99,800 MT or 3.9 million bushels and for 2014/15 crop year 719,300 MT or 28.3 million bushels.  The primary purchasers for new crop were Columbia at 223,300 MT, Mexico at 193,600 MT and unknown destinations at 161,900 MT.  It would appear that China is not content to just put a stop to imports of corn, it was reported overnight that there are some promoting increased scrutiny on imported US sorghum and barley.

Canada has been steadily increasing their production of corn over the past several years but is expecting a setback this year.  The Stats Canada report estimates total corn production of 14.43 MMT, which is down 19.5% from last year.  The five-year average production total has been 12.09 MMT. 

In face of what would appear to be all negative new this morning, corn futures have held support once again and bounced.  I suspect any strength though will be fleeting and with December future encountering very stiff resistance against the 3.75/3.80 zone.

Soybeans

While the weather outlook continues to be a negative influence on the bean market, near-term demand from crushers and solid new crop export sales have been able to lift prices back higher this morning. 

For only the second time this marketing year, old crop soybeans sales registered in the negative column, this time for -89,700 MT or -3.3 million bushels.  For new sales though, we sold 1,420,600 MT or 52.2 million bushels.  The major buyers were China at 947.9k MT, Spain at 120k MT and unknown destinations with 111.1k MT. 

While not a major player in the greater scheme of things, Canada has been pushing up bean production and Stats Canada projects that they will again this year.  The estimate places production at 5.9 MMT, up 13.5% over last year and would be 30% above the 5-year average.  If you recall, many of the beans we were importing into the US in the first quarter were coming from Canada. 

As with corn, I suspect the strength we are witnessing in the bean market this morning will be temporary.  While still somewhat grudgingly, beans continue to poke into lower lows and I believe we have room to see a 9 in front of prices between now and harvest.

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Is desperation near?

Aug 20, 2014

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Today we are hosting our annual outlook seminar and have an exciting and informative agenda lined up.  I will intend to provide you will updates from the speakers in the days ahead.

Wheat

It would appear that the wheat market is beginning to experience a case of disinterest at this time. We have little fresh little news to deal with as we are basically post production in the northern hemisphere, we already know that world stocks are growing this year and are moving into the final stages of the 2014 harvest.  Additionally, we will soon put the finishing touches on the corn and soybean crops so there is a lessoned risk of a big prices swing, i.e., rallies stimulated from problems there.  Accordingly, prices appear to be adrift and very understandably so.

We still have the possible risk of additional turmoil from Ukraine but I suspect the trade is becoming slightly numb to that news once again so the focus for wheat should realistically be completely demand, or lack thereof for the foreseeable future.  Problems for the U.S. though is that the with big crop coming from Russia and to a lessor extent Ukraine and Europe, no one will be beating down the doors here to purchase.  While I suspect we have already factored much of these elements into the current price structure so downside potential should be limited for now, it provides us with little reason for rally other than the occasional short covering bounce. 

Corn

We realistically do not appear to have much more news to help drive the corn market than we do for wheat at this time.  The Pro Farmer tour continues and while they did note some residual problems from the rough spring that farmers in eastern Nebraska encountered this year, even then the state estimate was not significantly lower than the last USDA estimate.

I suspect that growing season story will be pretty well behind us after this week, which is not to say that there will not be lots of excitement and conjecture in front of the September USDA reports but rather, in traders minds the crop will have been made and the biggest question will be how much larger it may be?  This is not to take away from the potential of an early frost and the issues that would accompany that, but that does not appear to be in the forecast coming from most meteorologists.  We do have Drew Lerner of World Weather, Inc.  presenting at our meeting today and I look forward to his always well-researched outlook.  

The near-term weather outlook appears ideal for putting the finishing touches on the 2014 crop with frequent showers forecast for much of the Midwest through the balance of the week and we appear to experiencing something that has been in somewhat short supply this summer; heat and humidity. 

All that said, the corn market actually did a nice job of bouncing higher into the close yesterday and even through we are back under pressure this morning, we remain in a now 5-week old sideways pattern.  While I do continue to believe the corn market should press into lower lows moving ahead into harvest and it may take some time to redevelop and refocus on demand but that said, that majority of this bear move should have already occurred.  Too often, people will tend to become desperate at the bottom and begin making sales out of a sense of hopelessness.  While I would not say we have quite reached that point but once it does happen, the end is very near. 

Soybeans

We seem to have a midweek void of news in the bean market as well this morning.  The weather forecasts look near ideal, news from the Pro Farmer tour has produced no bullish surprises and there has been nothing but standard export interest.  Looking at all of the above, it is a little surprising that prices have not been under more pressure than they already have.

Since breaking lower a week ago yesterday, November futures have been congesting in a range between 10.70 and 10.40 with the majority of the trade between 10.60 and 10.45. The meal market has been the stabilizing force as demand has remained a bit stronger than expected forcing crushers to step up but with harvest right around the corner, it is difficult to imagine that remaining a long-term influence. 

Once removed, I continue to expect to see November futures to make a push down to the 10.00 level, which in the greater scheme of things, is not significantly lower that current, just 7%.  As with the corn market, I do believe we have the majority of the downswing already in the rear-view mirror and this should not be the time to make desperation sales. 

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Rallies like beauty are fleeting

Aug 19, 2014

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Wheat

The mood appears dour in grain and soybean markets at this time and you have to dig pretty hard to find even the faintest of positive news. The wheat market began the day on it heels yesterday, finished out the same way and has sunk lower once again overnight.  We not only have the negative action in corn and soybeans weighing on this market but also the European and Black Sea trade which has been under pressure as we erase any risk premium that was factored in due to the turmoil in Ukraine. 

While it would be stretching to call it a positive influence, at least the export inspections were a touch better than trade expectations.  For the week ending August 14th, we shipped 21.9 million bushels compared to an upper estimate of 19 million.  This brings the year to date tally up to 190.38 million bushels, which lags last years pace by over 30%.  That said, year to date we have been averaging 17.3 million bushels and to reach the USDA target of 925 million, we only need to pick up the pace to 17.9 million per week.

Spring wheat crop conditions slipped just 2% with the good/excellent rating now at 68%, which is basically a moot point at this time.  Harvest has reached 17% complete, which is basically ½ the normal pace of 33%.

We have still not pressed into lower lows in the Chicago market but have reached to within a dime of doing so.  I would like to think that we just entered an extended sideways pattern but could soon test out that theory. 

Corn

The early strength in corn yesterday was like proverbial line about beauty as it fades with age and in this case we aged pretty rapidly.  December futures actually posted an outside lower daily reversal and have struggled again overnight.  Rains, warm temperatures and expectations for bigger crops and a short-term overbought position all weighed on values.

Throughout the day there were messages and tweets hitting the ether from the Pro Farmer tour and while you heard opinions of every stripe, the trade seems to key in on reports out of Ohio about potential record state yields.  This would be pretty typical market psychology, as bear markets tend to zero in on bearish news just like bull markets focus on bullish news. There were a number of comments about the lateness of the crop, which is partially reflected in the weekly conditions reports.

For the week ending August 17th, corn dented stood at 22% versus an average of 27%.  That said, 70% of the crop was in the dough stage compared with an average of 63% and overall conditions were down just 1% with the good/excellent rating at 72%, which is of course outstanding for this time of year. 

Export inspections were a bit above the upper end of trade estimates at 38.2 million bushels but this is still lagging the pace we need to finish out the year.  We shall have to wait for the census numbers for the final tally but with just two weeks left, this would say that we need to average 77.2 million per week to reach the 1.92 billion bushels target. 

While maybe too early to completely write it off, the action yesterday would appear to have negated the outside higher week and may be indicative that the seasonal August bounce is complete.  As I have commented previously, corn would likely face extremely tough headwinds on any advances and the performance yesterday reminds us that the path of least resistance right now will be to the downside. 

Soybeans

While November beans were able to maintain strength for the close yesterday, the action was less than inspiring.  We are soft again this morning and while we have not really tumbled lower just yet, we now appear to be finding resistance between the 10.55/10.60 level where we used to find support.

As with the corn, the trade appeared to focus on what would be negatively construed stories from the Pro Farmer tour. As we all know, beans yields are notoriously difficult to predict but a number of the comments I read sounded quite positive for yield.  This was verified by the weekly conditions report as good/excellent rating actually climbed 1% last week and stand at 71%.  Beans setting pods has reached 83%, which is actually 4% ahead of normal. 

Export inspection should be a moot point but we continue to push a few out each week.  For the past week, that tally was 2.1 million bushels which brings the year to date shipments up to 1.588 million bushels.  As with corn, the raw inspection numbers would appear to say we are going to fall short of the USDA target of 1.64 billion but we shall have to wait for the census numbers for the final tally. 

As I commented above, beans broke under the 10.55 support a week or so ago but quickly found a ledge to hold onto at least temporarily.  I continue to believe we will eventually make a dive down to the 10.20 to 9.80 range but evidently need another piece of negative news to push them off the current ridge.


Little more than technical action to start the week

Aug 18, 2014

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Wheat

After finishing last week on a positive note, the wheat market begins this new week on a sour one.  While the selling is not severe, all three markets are under pressure led by weakness in both European and Black Sea trade.  While there has been no resolution with the Ukraine/Russian situation, it would appear that the trade feels there will little to no impact on grain business from that region.

Adding insult to injury for Northern Hemisphere wheat prices, major growing regions in Australia have been receiving very beneficial moisture.  Even if a weak El Nino did develop this fall, it would appear to be too late for a negative impact on the Australian crops. 

As you can see, there is very little positive that can be pointed out for the wheat market this morning.  That said, prices do remain within the same trading zone as we have now for the past 6-weeks, which is ideally indicative that the trade has already factored many of these elements into the existing price structure.  Markets of course need to quit going lower before we can beginning discussing a rally and it would appear that we have accomplished at least the first part of that equation.   For now though, the headwinds will be fierce. 

Corn

The corn market has been able to muster a little follow-through buying as we begin this new week but it could be a challenge to maintain.  I suspect most of the strength is technical in nature as we did post an outside higher reversal last week but there would appear to be very little new to attract much new buying other than a little end user pricing and some short-covering. 

Decent rains fell across Southern Iowa and Missouri over the weekend and the forecast for the next 6 to 10 days calls for nice showers across the upper Midwest as well.  The Pro Farmer crop tour kicks off this week, and some of the participants had better bring their raincoats and rubber boots as it may be a bit sticky.  The trade will be looking forward to the reports throughout the week as I am sure they will be tweeted and blogged with official reports each night and then the complete wrap-up on Friday.  Updates can be found on the Ag Web website; http://www.agweb.com/2014_pro_farmer_midwest_crop_tour.aspx.

There is a possibility that crop conditions will reflect a little decline this afternoon, which would normally be the case but I imagine the changes will be slight. 

Ideally the turnaround posted last week has us poised for a little more of a corrective bounce but I suspect it would not be long in either time or price.  This would be a fairly typical seasonal pattern in the corn market where we catch a minor August bounce setting up a final push lower into harvest lows.  If correct this year, it should provide an opportunity for those needing to make additional catch-up sales.   

Soybeans

The bean market has experienced a little two-sided action as we begin this new week but as with corn, it would appear there is little outside of technical action that would substantiate strength.  The current weather picture would appear to provide near ideal conditions to finish out this crop.

Funds did appear to reduce their short positions last week and remain long in meal, which is the market that has kept beans from breaking further than they have already.  That said, we as we move closer and closer to harvest and increased availability of beans, that story will be difficult to defend as well. 

I would not expect to see much if any change in crop conditions this afternoon.

Eventually, I expect to see November futures push down at least into the 10.20 to 9.80 price range and if we can catch a little short covering bounce yet this month, it should provide an opportunity for making catch-up sales.

A Look Forward Part IV

Aug 15, 2014

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So, moving forward, what does this potentially mean for all of us in the production sector?  First and foremost, if I am correct in my assessment that we have already witnessed a 30-year peak in commodity prices, we must now work through a period of re-adjustment at the farm level.  By no means do I think it is realistic to believe prices will revert to the level we experienced through the 1970’s continuing through to the new century, but we should be in the process of adjusting to our new plateau.  Using corn again as the example, through the 1920’s into the post WW II peak, prices generally traded between $.50 cents and $1.20.  From the 1950’s into the early 1970’s corn remained between $1.00 and $2.00.  The 1970’s through the end of the century, we were contained between $2.00 and $4.00 and of course now we have expanded to $8.00 on the upper end.  Does this mean that we can now expect to see corn remain roughly between $4.00 and $8.00 per bushel, or possibly $8.50 and $3.50 for the next 20 to 30 years?  While this is still the discovery period, the upper end should be fairly established but we have yet to determine the lower side.  That said, we should learn what this range should be between now and the fall of 2014.  Historically, the low end of the range is normally established during the second year after a major peak. The more optimistic outlook for the economic picture would call for a period similar to the 70’s to 90’s, where prices traded regularly between the upper and lower ends of the trading range.  But what if this new era is similar to the 50’s and 60’s?   Low volatility, narrow ranges, and stagnant returns for production agriculture are possibilities that could be very real and disastrous. 

As covered previously, input costs and expenditures on machinery and equipment have accelerated sharply over the past five years.  Along with readjustments in those sorts of purchases, if, as I believe, prices begin to stagnant at this new range there will need to be major readjustments, particularly in the area of cash rents and land prices which are exhibiting many of the classic signs of a bubble.  About this—in six of the past seven years, agricultural ground in the heart of the Corn Belt has risen at a double-digit rate.  In some regions over the past few years, ground prices gained as much as 26%! [i] 

I believe the essentials you need in your toolbox moving forward are the following:

1.     A sharp pencil

a.     You need to know exactly where you are and recognize areas where waste or inefficiencies can be eliminated.

2.     Education

a.     Brush up on your risk management education.  If you have not been using your skills, all tend to become a bit rusty and out of shape.  It is time to bring these skills back to top performance levels.

3.     Use all the tools at your disposal

a.     Cash contracts

b.     Futures and Options

c.     Revenue Insurance

d.     OTC Products

There are a variety of tools that are available that can help you address risk and manage return.  There is not "one size fits all", so you need to learn how to use the right ones for the right job.

4.     Discipline

a.     This really applies to all aspects of your operation.  It applies not only to the discipline needed to develop a well thought out written risk management/marketing plans, but just as important the discipline to implement such plans.

5.     Strengthen your relationship with your lender

a.     Many of us have needed to rely less on lenders over the past couple of years, and it may be time to re-develop that relationship.  Keep in perspective as well that someone under the age of 35 has never really experienced a rough period in agriculture.  You need to be prepared for how your lender could react. 

6.     Set realistic i.e. toned down expectations

a.     We have grown accustomed to very substantial returns on investment in production agriculture, which is not historically the norm.  How long to you think it would be realistic to see double-digit returns with a zero percent interest rate environment?

b.     Additionally, up-cycles such as we have experienced over the past decade or so are very forgiving to less than disciplined risk managers.  Down cycles are very unforgiving

We at the Hueber Report specialize in providing you with the very tools you need to thrive in all periods of the Agricultural Cycle, especially when times become challenging as it appears they will over the coming years.  We consider it a privilege to work with the American Farmer, to help them manage risk, and to prosper through a disciplined approach to marketing.  Whether we are feeding a world population of 8 billion or 10 billion by the end of the century, farming is literally the industry that can mean life or death for the world.  We strive to do all that is within our power to help clients carry out this task profitably.

When you concentrate on agriculture and industry and are frugal in expenditures, Heaven cannot impoverish your state.

Xun Zi



[i] The Agricultural Newsletter of the Federal Reserve Bank of Chicago.  Number 1961. August 2013.

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