Jul 28, 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.

Morning Comments - Finally a stable start to a week

Jul 28, 2014




The wheat market began the overnight trade with a little strength but as the night wore on, buying waned.  Overall this still leaves us in a flat congestion pattern, which is actually encouraging as it is the first step we need to make if there is to be a setup for a possible corrective bounce. 

Overall news has been very quiet over the weekend.  News from Russia is that the ongoing harvest grinds ahead and prices for wheat continue to sink lower in response.  As I reported last week it is currently estimated that their crop could reach into the 57 to 60 MMT range, which compares with the last USDA estimate of 53.  They will be a force in the export market for much of the year.

After much hoopla earlier this year, the El Nino event appears to be more of a whimper than an ill weather-producing event.  Recently the Australian Bureau of Meteorology stated that there was still a 70% chance of an El Nino but they felt it would be so weak it would have little impact on weather.  That country has already been having issues with dry conditions and a large event could have potentially pushed them into a serious drought.

Finally, harvest continues to advance in the United States and as reported last week, yields have continued to improve as we have moved north.  The Quality Council tour last week has set high expectations for above average yields once we have reached into the Northern Plains states.  

Even though all the news for wheat would appear dour, December wheat has moved into the third week of sideways trade roughly between 5.70 and 5.50.  If we continue in this fashion through the end of the week, I suspect we are poised then for a corrective bounce in August.  


While there would appear to be nothing positive to stimulate enthusiasm, December corn has begun the new week with a round of buying and we have reached up to touch against the highs of the previous week.  Now if we can actually push through and fill the gap that was left a week ago today at 3.77 ½ is left to be seen, this would seem to suggest the market is a little weary of trading the same supply news.  

Since this past Friday I have traveled from Northern Illinois to Des Moines, from there into Wisconsin and then on Sunday straight down through Illinois and into Southern Indiana. Basically a thousand miles of travel. While I recognize that windshield crop observations can be notoriously inaccurate, I have to say I do not believe I can ever remember seeing such consistently great looking crops through the entire journey.  Yes, there were areas where you would find low ground completely drowned out but they represent a minor portion of the total.  Crop conditions should reflect little change this week.  With a benign forecast for the weeks ahead it is difficult to imagine the corn market providing us with much of a rebound to the upside.  

That said, as we approach the end of a month, there could be the possibility that selling will lighten and we could even catch a short-covering bounce.  With managed funds still long in this market though, overhead selling should be stiff and corrective strength likely anemic.  


Beans have also witnessed a little overnight bounce as we have begun this new week but so far remain trapped within the range of the previous three weeks.  This is of course the crop that holds the most yield uncertainty at this point and it would appear bulls are prepared to defend their positions until more is known.  As I commented under corn, during my travels over the weekend I saw miles and miles of beautiful looking fields but as anyone who has been around beans will confirm, big bushy plants do not assure big yields.  I continue to maintain we need sunshine now in August to bring on this crop.  I suspect crop ratings will reflect little change this week.  

I continue to believe this market appears poised for a short-term corrective bounce but I suspect resistance will be stiff between 11.00 and 11.30 with another shelf of resistance against 11.50.  The bears have not been able to wrestle control of this market just yet and it would appear we will need to move a bit further into the month of August before that may be the case.


Weekend Commentary - A Look Forward Part I

Jul 27, 2014



Last year we published a report titled A Look Forward in an effort to try and help prepare our readers for challenges that we believe American agriculture will be facing in the decades ahead.  To a certain extent we could have titled this piece "A Look Back to enable us to Look Forward" as what we believe is in front of us is realistically a replay of pervious periods; while all long-term cycles will carry their own uniqueness, there are certain patterns that seem to play out time and again. In light of what has occurred now with the 2014-growing season, it seems fitting to review what we wrote about last year. This paper was written in four parts so beginning this week and running for the next four, we bring you once again A Look Forward.

Part I

I began my agricultural career back in the mid-to late 1970’s.  It was a precarious time in the world, as we were still in the throws of world-wide concerns over food production and population growth.  You did not have to look far to find Malthusian[i] predictions about mass starvation in the not-too-distant future.  Considering we had just emerged from a series of crop problems created by both adverse weather and disease issues around the world, it was not a stretch to envision how there would just be too many mouths to feed.  In 1974, the United Nations held a World Food Conference in Rome to discuss the situation.  At the conference, then Secretary of State, Henry Kissinger, stated that within a decade no child should go to bed hungry[ii]. "Plant fencerow to fencerow" became the mantra of the day, and world agriculture responded by increasing production in just about every hemisphere. Indeed, even before these concerns had arisen, had it not been for the pioneering research efforts of individuals such as Dr. Norman Borlaug [iii] in the 1950’s and 1960’s ushering in the "Green Revolution", there would most certainly have been numerous instances of mass starvation in places like India and Africa.

It’s funny the things that are remembered generations later.  I have always found it a bit curious that Thomas Malthus is identified with dire predictions of mass starvation.  In fact, he was basically just analyzing demographic trends in population.  His theories predicted that trends in population would tend to increase at a faster rate than trends in food production, creating disruptions and the need for adaptation, i.e. lower birth rates, increased use of land, etc.  The fact that the world had not already starved was a testament, or verification really, to something else at work.   What changed?  Refer to it as Adam Smith’s "invisible hand" or economics 101: we humans respond to stimulus and incentive, and the global agricultural community stepped up to the plate and increased production.  As a student of the markets coming in at such an exciting time, I was hooked. 

It was in the 1970’s that I developed an interest in cycles.  It only stood to reason that with the ebb and flow of world grain production we would experience periods of glut and shortage, and price movement would reflect the need to increase or decrease production.  To further my education, I was introduced to the writings and research of individuals like Russian economist Nikolai Kondratiev and W.D. Gann who believed there were natural and somewhat predictable patterns that unfolded over time.  Though I knew that I could never embrace the more esoteric ideas particularly of Mr. Gann, this research instilled in me a hunger to learn more about the natural cycles or rhythms that appear to influence us in many ways.  And so a lifelong search for more information ensued.   

Along my quest to find and share knowledge, I have encountered many reactions to the idea of cycles.  The imprecision of cycles is one of the basic problems that many people experience with the topic of cycles.  What good is something if the best you can expect it to do is an occurrence within a 3-year time window?  Additionally, some argue that as civilizations and technology evolve, we will render these swings either useless or ineffective.  But try as we might, we humans cannot control everything, particularly not human nature or the weather; an endless source of frustration for many.  While learning about cycle does not allow you to control the events that could occur, ideally it will at least provide an advance warning or way to prepare.  As such, even though no pattern or event unfolds the same way each time, I believe looking at past cyclical patterns can give us insight into current and even future events.

This brings us to the most common question—where in the commodity cycle might we be today, and more importantly, what might we be looking for in the not-too-distant future?  In general, commodities, and particularly agricultural commodities, appear to have an approximate 30 year cycle of advancing into new highs.  This pattern or cycle appears well defined on this price chart of December corn futures that extends back to 1899, with major peaks in 1919, 1947, 1974, and then most recently in 2012.  Specifically with the most recent peak, commodity markets as a whole began to rally soon after we entered the 21st century with a culmination in 2012.  Of course, the prices of agricultural commodities are not the only thing to advance or inflate during these advances as all commodities accelerate including energy and fertilizer. Ultimately this also translates in the land costs and other input expenses.  I am not sure if this is a case of the dog wagging the tail or the tail wagging the dog, but ultimately when prices level off, profitability is once again squeezed.  For many on the production side of the business, the return on investment reverts to levels no better than prior to the price advance, but with risks higher as we now must commit more capital than before the move. 

Each and every time this has occurred, there will be those exclaiming that we have entered a new era and that the prices for commodities will continue to rise to ever higher levels.  The reasons are many, take your pick: there is not enough land and/or water available, we are not increasing productivity, or the old Malthusian prediction that population growth is outstripping the capacity to produce food.  Now, I certainly do not have the foresight to predict whether there will be a day when one or all of the above scenarios comes true, but I believe that at this point in history they are misdirected once again.  Unfortunately some of those who have bought into the story will end up paying a financial penalty as we adjust and rebalance to new price structures. 

Even though cyclical patterns may not predict the exact day to buy or sell, I believe ignoring their importance is folly on behalf of the producer or consumer.  As I have commented previously, recognition of a possible forthcoming event can potentially provide us the blueprint to take appropriate measures in our overall business plan. This is not meant to come across as some type of doomsday scenario where you need to hunker down in a fallout shelter with bottled water and freeze dried food, but rather lay out a plan to deal with tighter margins of return and less forgiving conditions for those who are not prepared.

In the following segments of this series, I will be exploring further the swings the agricultural community has faced in the past relating to land, price, and production.  Finally, I will explore the tools you will need in your arsenal to prepare for the years ahead.  I hope you’ll join us.

[i] Library of Economics and Liberty. (n.d.). Thomas Robert Malthus. Retrieved from The Concise Encyclopedia of Economics: www.econlib.org


[ii] Thurow, R., & Kilman, S. (2009). Enough - Why the World's Poorest Starve in an Age of Plenty. New York, New York, USA: Public Affairs.


[iii] The World Food Prize Foundation. (n.d.). Norman E. Borlaug. Retrieved from The World Food Prize: www.theworldfoodprize.org


Morning Comments - Bad news keeps rolling in

Jul 25, 2014




Yesterday was another discouraging day for the wheat market as early gains were once again surrendered and prices continue to wallow around the recent lows.  None of this really comes as any shock as we try and determine if we have reached a point of value in face of ongoing negative news. 

There is the old saying about "if I did not have bad luck I wouldn’t have any luck at all" and you can paraphrase that in the wheat market to "if I did not have bad news I would not have any news at all."  The Quality Council tour came up with a yield for North Dakota spring wheat of 48.6 b/p/a, nearly 4 bushels higher than last year. Sales yesterday we basically ho-hum and the Black Sea continues to dominate the world market and very likely will continue to do so through the balance of the calendar year. 

While I would not want to qualify it as positive, the most encouraging thing that can be said about the wheat future performance at this point is that we are have been tracking sideways now for two weeks and you have to quit going lower before you can go higher.  As I am preparing the comments this morning we have December futures at 5.49.  Last Friday we closed at 5.56 and the Friday prior 5.47 ¾.  If we can hold this level into the beginning of August, bears may grow impatient enough to provide us with a short covering bounce. 


If the picture in wheat looks blue than you would have to describe the corn market as black and blue as the bulls took a few knocks again yesterday.  It is not that we closed much lower but we failed to hold the early strength and have been back under pressure again overnight.  December corn closed last Friday at 3.78 ½ and this morning we sit around 3.67 so unless we see some type of shocking reversal into the close, this will be the 5th week in a row of lower closes with nothing to suggest we are ready to end the slide.

While the continued benign weather and ideas of larger yields are probably enough to keep prices on a downward slope, corn did received another kick in the teeth yesterday with news out of China.  They will now require that all shipments of DDG from the United States be certified MIR162 free by the USDA.  Basically, they will not be accepting any DDG’s from the United States, which effectively is 50% of our export market.  This is not positive for corn or soymeal. 

The corn market is on a mission to find value but that will be difficult to effectively do until more is know about the size of the crop.  While that does not preclude seeing rallies, and as we witnessed this week a little perceived threat in the bean can provide a bounce and even the week before with the airline disaster in Ukraine, but to sustain strength should be very difficult.  As such, we will continue to fade bounces with the idea that corn will potentially push against the 3.00 level before this move is complete this fall. 


The positive export sales provided the bean market with enough fuel yesterday to push to the highest level in a week but not enough to sustain most of that strength for the close.  Without another shot of juice overnight and into this morning, we have now erased all the gains that we achieved.  That said, we are off the lows for the week, which in November futures are 10.55 and the lowest close to date, which is 10.57 ¾. 

The bean market continues to cling to premium with the uncertainty yet of the August weather.  The forecasts that I have seen do not appear to offer anything crop threatening but as we know, there is certainly no assurance that something may not develop.  If we can hold stable through the next week I suspect this market should have room for a bounce possibly back into the 11.30 to 11.50 range and as it stand right now, we would be viewing such action as an opportunity to reward.

Morning Comments - A rising tide lifts all boats

Jul 24, 2014




Everyone was expecting markets to pop back at some point but no one was sure where it would begin but as it turned out, beans led the way.  I guess that should not be terribly surprising as beans have been the demand leaders all year and are still exposed to the most yield uncertainty moving forward.  At this point it would appear that wheat is pretty much along for the ride as fundamentally there is little to support an extended run at this time.

There is more and more discussion about the wet condition in Europe delaying harvest and creating quality issues.  For the most part, this is not positive US markets as it just means there is more feed quality wheat and the Europeans are very adept at feeding wheat.  The French harvest stands at 30% complete and Germany 15%.  Moving farther east through, ideas for the size of the Russian crop continue to grow and there is talk now that it could be in the 57 to 60 MMT range compared with the latest USDA estimate of 53 MMT. 

The export market continues to belong to the Black Sea.  Yesterday it was reported that Egypt purchased 235,000 MT split between Russia, Ukraine and Romania and Iran is in that market for an additional 50k MT.  US sales did improve this past week as we sold 443,200 MT or 16.3 million bushels.  The primary purchasers were Japan at 92.8k MT, Nigeria at 71.3k and Singapore at 53.5k.  Year to date we have sold 8,931,000 MT or 328.2 million bushels, which is 27% behind the pace of last year. 

It is nice to see wheat rally for a second day but we are not out of the woods yet by any stretch.  The high in December futures last week was 5.84 ½ and we would need to push up and close above that level to confirm an intermediate bottom.


There is an old saying that a rising tide lifts all boats and that would appear to be the case in the corn market right now.  December futures were able to shake off the early pressure yesterday for a higher close and now this morning we have been able to bounce up enough to test the bottom end of the gap left on Monday between 3.76 ½ and 3.77 ½.  Dare we think it could be filled?  Regardless I do not suspect the corn market possesses much independent strength. 

The latest yield estimate has been published by Lanworth and you may recall, this is the company that uses satellite imagery for their predictions. Their current yield estimate is 172.8.  It is interesting to note that the rationale for the rally was partially attributed to drying conditions in the southwestern and northwestern sides of the corn belt and while there could be a case made for concerns in beans, I think it would be difficult to make that story stick for long in corn. The current forecast, which includes a few showers in those drier areas, calls for a continuation of the cooler than normal conditions which would mean that nearly all of the corn in the country will have pollinated with virtually no stress. 

Old crop export sales were disappointing as we fell below the lowest trade estimate but new crop were very solid.  For the 13/14 marketing year we sold only 291,500 MT or 11.5 million bushels.  That said, we have now sold 7 million more bushels than the 1.9 billion projected by the USDA but it looks a bit questionable if we will actually be able to get them out of the country before September 1st.  New crop sales totaled 1,143,400 MT or 45 million bushels.

The consistent performer all year has been ethanol, which was the case again last week.  For the week ending July 18th we produced 281,946,000 gallons for an equivalent of 101.4 million bushels of corn. Weekly stocks were unchanged.  It would stand to reason that the USDA could boost the current year usage figure another 25 million to 5.1 billion on the August report.

It is too early in the day to say with any level of confidence that corn will be able to maintain the early strength as the market is already faltering but if the other two markets can, corn may be able to hold as well. That said, rallies for now should be short in both time and price    


Beans are the rebound leader at this point and the rally yesterday was enough to deny the bear a second close below the July 11th low at 10.65.  Part of the strength appears to be stimulated by concerns of dry conditions in some areas of the western growing regions which I am having a hard time swallowing.  Not because I do not believe there are some areas that have not see rain recently but more so, with the rows pretty well covered and cool overall temperatures, that would not be the kind of condition normally associated with aborting pods. 

Lanworth also published their bean yield estimate, which is 45.2 b/p/a.  While that is basically unchanged from the USDA number, it still reflects a record yield for beans.  Taken a step further, the current record yield of 44 b/p/a was set back in 2009 and that was on 7.3 million fewer acres.  This rationale does not apply quite as well as it does in corn but it would stand to reason that the greater the number the acres planted, the greater the chance that some of them are less than the most productive soils. 

Export sales were actually quite solid for both old and new crop beans.  Granted, the old crop sales may ultimately be shipped in the new marketing year, we did sell another 226,700 MT or 8.3 million bushels.  Year to date sales are now 64 million bushels above the projected 1.62 billion.  We know during the past week that China and unknown destinations have been active buyers of new beans and that was confirmed this morning with sales of 2,451,100 MT or 90.1 million bushels. 

November futures have bounced enough this morning to fill the gap left on Monday at 10.82 ½ and even pushed above the January lows at 10.88 ¼ but if we can close above that point would now be the question.  If successful, we could have the door open for a bounce back against the breakaway level up around 11.30 into the end of the month.


Morning Comments - Exasperation in the beans

Jul 23, 2014




While not an unusual pattern when in a bear market, grains and beans were not able to sustain the early positive prices yesterday and closed lower once again.  December wheat did not push into a lower low but did briefly overnight before bouncing back into positive territory.  The question now would be, can we hold this early morning strength all the way until 1:15? 

There is a spring wheat crop tour being conducted currently and I may have spoken too soon yesterday when I said we have already factored the crop size in the overall price of wheat.  In North Dakota one of the groups found yields above 64 b/p/a with other around 45.  The 5-year average yield for ND is 43.3. Regardless, as we all know yields while important are only part of the overall production number and one would have to suspect that with all the wet weather in the Northern Plains this year, abandonment and lost acres will be higher than normal.

The latest production news from Ukraine would seem to reflect the issues and uncertainties they have been suffering all year.  The overall grain harvest is projected to be down 3 MMT versus last year. Of the total, they are expecting wheat production of 22 MMT. 

I continue to believe that we should see the wheat market begin to track sideways between now and the end of the month.  If correct, we should be in line for some type of short-covering correction in August.


The corn market settled into lower lows once again yesterday and extended the weakness just a smidge more overnight. It is not that we are in an aggressive push lower but with nothing from the outside that would break the psychology and funds with plenty of long positions to liquidate, it is quite understandable as to why we have not been able to sustain any strength.

Yield estimates are beginning to roll in with Doane’s the first to strike blood.  In Illinois they have commented they found one of the best crops they have even seen and there was a possibility for a statewide yield of 193 b/p/a.  In case you were wondering the current record yield is 180 set in 2004 and almost reached again in 2013 at 178.  Look for more reports begin emerging each week as we move closer to the August report scheduled for the 12th of August.  The annual Pro Farmer tour is scheduled for the 18th to 21st of August.

Ukraine is now projecting its corn crop to come in around 29 MMT, which could be down from the 2013/14 crop of 30.9 MMT.  The combination of less than ideal weather, the political instability and crash in the currency forcing farmers to cut back on inputs are cited for the dip in production.  That is actually not as bad as some feared back when the problems erupted in March as some believed the crop could be cut by a third.

The CIF market for the fall has been strong but part of this is in response to the freight market for that same period.  Both the Illinois and Ohio rivers quote October freight at 750% of tariff.  It is my understanding that not only do we have strong demand for freight because of a large impending harvest but also due to the extra demand to move salt north in preparation after the harsh winter last year.

While we are susceptible to a short-covering bounce at any time, there would appear to be little reason to expect sustained strength in corn.  As such, I continue expect prices to keep pushing into lower lows at least through the end of the month. 


No one is really paying much attention outside of the cash trade but nearby bean futures have stabilized over the past week but new crop continues to head south with November futures posting an outside lower day after just failing to close the gap early yesterday.  That appeared to be the give-up move for the last of the holdout longs. 

There does continue to be interest in new crop product but this time it is in the form of meal demand.  Yesterday the USDA announced sales of 225,000 MT of meal to unknown destinations and 180,000 MT to Vietnam.  Lower prices are doing what they are supposed to do.

The Doane tour noted good looking Illinois beans but stopped short of calling it as solid as the corn crop.  They reported yield checks in the upper 50’s to low 60’s but understandably commented that it was too early to make solid yield estimates. 

With the break down into lower lows yesterday, it would appear that November futures have opened to door for additional losses through the end of the month.  Weather generally appears to be non-threatening and I suspect we have room now to reach down into the low $10 level before encountering much support.

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