Jul 25, 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 - 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.

Morning Comments - Uninspired bounce

Jul 22, 2014




As noted yesterday morning, the wheat market was not under quite as harsh a pressure as corn and beans and while still closed lower for the day, prices were towards the upper end of the trading range.  We have been able to bounce higher now overnight and while by no means have we done anything to panic the bear, I believe there is reason to think we could at least begin to stabilize at this level.

It is not that any of the news is particularly positive.  Export inspections did bump up 33% over the previous week coming in at 18.94 million bushels.  This was 5.3 million below the same week last year and for the marketing year to date, we are off last years pace by a little over 17 million bushels.  Winter wheat harvest has caught up to average and as of the 20th stands at 75% complete.  Spring wheat headed is at 84%, just 1% behind normal and conditions were unchanged with the good/excellent rating at 70%.   

Of course really none of this comes as a surprise and unlike the corn and beans, the potential size of the crop is not really growing in traders minds.  Accordingly, without major daily pressure in the other two, I would expect wheat to begin to stabilize between now and the beginning of the month and should offer the best potential of the group for a rebound in August.


The corn market has been able to bounce a bit here during the early morning hours of trade but call it what you will; a dead cat bounce, a sympathy bounce or any other description you want to give it, the strength has not amounted to much just yet.  We still have a weekly gap left yesterday between 3.77 ½ and 3.76 ½ and would need to at least cover that to suggest the bears are getting bored with their positions. 

Export inspections fell right in the middle of expectations at 37 million bushels but that number continues to run below the average we need to maintain.  Year to date we have shipped 1.614 billion bushels and to reach the USDA target of 1.9 billion we now need to bump the weekly average up to around 40 million a week.

The condition of the corn crop reflected no change this week with the good/excellent group at a substantial 76%.  We should begin to see this number drift lower now as we move beyond the pollinations stage. Corn in the silking stage has reached 56%, which is 1% ahead of average. 

With the heat wave lasting only a day or so and moisture in the forecast, there would appear to be little reason for bears to become uncomfortable in the near term.  I would expect to see prices drift sideways to lower through the balance of the month.


November beans were able to hold at the previous weeks’ low of 10.65 yesterday and have bounce back enough this morning to almost close the gap at 10.82 ½.  I have seen stories this morning that the buying has been inspired by the recent stretch of dry weather which could be creating a little short-covering but I have to think heat and sunshine are exactly what the beans are going to need as we move into August.

 As far at the conditions of the crop, the good/excellent rating picked up another percent this past week and stands at 73%.  I understand there were only two other years when the ratings were higher than this at this time which were 1992 and 1994.  In 1992 we set a new record national yield at 37.6 b/p/a and then broke that record in 1994 with a yield of 41.4.  60% of the crop is blooming versus a normal of 56% and 19% setting pods compared with 17% on average. 

Export inspections have run pretty consistent for the past several week and for the week ending the 17th we shipped 3.6 million bushels. The average for the past 4 weeks had been 3.17 million and year to date we have now moved 1.577 billion.  To reach the USDA target of 1.62 billion though, we will need to bump that average up to 7.2 million.   

It will be interesting to see if today’s rally amounts to much more than a Tuesday undo bounce or even if we can completely close the gap at 10.82 ½.  For now it would seem that the odds are stacked against the bulls and I expect to see prices work generally lower between now and the end of the month.



Morning Comments - Home on the Range

Jul 21, 2014




We have begun this new week on a pretty dour note as we have pressure across all the grain and soy markets.  Understandably, wheat is experiencing the least of the selling and we have continued to hold above the lows set two weeks ago but that is small consolation at this point.  Realistically the wheat market should be the first of the grains/soy to bottom as we have already absorbed a harvest "hit" and the market has acknowledged a solid world crop and very tough competition in the export market.  Historically, we will often see wheat bottom before corn, which of course does not say much positive for the corn outlook at this time.

Chinese import data was released over the weekend and during June, wheat imports were down 48% versus last year.  Although the Russian harvest got off to a slow start they have been making progress, which has continued to pressure their markets.  The Black Sea rules the export trade right now. 

The heat early this week will evidently be brief with showers and cooler temperatures quickly on its heels, which should keep the overall psychology of the markets negative.  As I commented initially, wheat has not pushed into lower lows but moving forward will need to at least begin trading flat at current levels to begin thinking about a bottom in the making.


There was a song that I learned in my childhood that many of you probably remember named Home on the Range.  I could not help but think of it this morning as in the song it talks about the skies not being cloudy and that we seldom hear a discouraging word.  Well this year has been anything but a real life example of the song as we have had more than our share of clouds and it is pretty difficult to find anything but a discouraging word, and that certainly applies to this morning.  The corn market has posted another weekly gap lower and into new contract lows once again. I am not going to view this as anything more than a possible minor measuring gap but if left unchecked through Wednesday, it will have open the door for a push down to at least the 3.59/3.55 level. 

Weather is really the only topic that traders are focusing on at this point and realistically it could not be much better for the vast majority of the growing crop.  After a brief warm up today and tomorrow, showers and cooler temperature are set to return and it would appear that a large swath of the corn will have pollinated under ideal conditions.  Outside of the wet spots and those areas hit by hail, corn plants have experienced precious little stress this year, which usually translates to excellent yields.  The focus should soon shift to finishing this crop out with enough growing degree-days. 

Managed funds have continued to liquidate their long position but still hold around 93,000 contracts.  This fact along will hang over the market like a weight; a 93k pound weight. 

There is very little else to look at currently.  The trade expects the weekly ratings to be flat and of course keep in perspective; these numbers will normally begin moving backwards after pollination.  There is little sense in trying to pick a bottom at this time, particularly in light my opinion that we should set what I believe will be the base level for the corn market for the next 20 year or so this fall.  


The bean market also gapped lower again this morning but unlike the corn market, did not gap into new lows for the year.  That said, if we have not filled this hole before Wednesday close, it provides projections in November futures to at least 10.45 and of course we still have the previous gap objective down between 10.20/10.10. 

New beans were supported last week by large Chinese buying and while that could return again, it would appear to be one of the few positive factors that we have.  As expected, managed funds are now short over 6,000 contracts, which is a first since late 2011.  The extended weather forecasts would appear to be favorable as we look out into August and if correct, it is difficult to think prices could hold in face of.  Look for conditions to be unchanged to possibly a touch better this afternoon. 

As I commented initially today, we have begun this week on a pretty dour note with the only words to be heard are discouraging ones.  Instead of singing a light-hearted cowboy tune, the trade has nothing to listen to but the down and dirty blues. 


Weekend Commentary - Global Demand Perspective

Jul 19, 2014



This past week, I once again had the opportunity to attend the annual Kansas City Federal Reserve Ag Symposium.  This year’s event was titled Structural Transitions in Global Agriculture. As you might surmise from the name, the program addressed the shift that is occurring in agriculture from a period of rapidly growing demand and record profitability, particularly in the grain sector, to one of tighter margins (losses) and realignment.  This is a topic that I have written quite a bit about over the past couple years and addressed last year with our publication A Look Forward.  Agriculture has always been a business of boom and bust cycles that offer both great opportunity and just as equal risk, particularly for those who mistakenly want to believe the pattern will not repeat itself time and again.  What can make things particularly challenging in Ag is that the cycle unfolds over such a long period; it can be difficult to keep in perspective.  While not ignoring the obstacles and realignments that will need to take place over the short to intermediate term, by which I mean 10 to 15 years, the information that I found most intriguing at the conference came from those looking at the livestock sector. As I have pointed out in previous articles and presentations, commodities need a growth engine to move prices into new levels. While expanding world population numbers provide part of that engine, most recently we had rediscovered the locomotive by the name of renewable energy that pushed demand into new realms and ultimately prices, but it would appear that driving force has leveled off or at least slowed down the rate of advance.  Looking forward, we very well could be reverting to what was traditionally the driving force in demand, livestock. 

Livestock production and prices have been a hot topic as of late so it should not be a surprise that one of the segments of the symposium was devoted to the outlook for livestock production. But the discussions had less to do with the current situation and more to do with longer-term projections for the growth of meat consumption worldwide. In the United States and in much of the developed world, we have confronted years of declining per-capita red meat consumption, which has partially contributed to the lowest cattle inventory in the United States since the early 1950’s. Yet the advance in prices over the past year would appear to have at least stabilized and possibly began a reversal in that trend as producers appear to be increasing the size of their herds.  More importantly for the future is the potential for demand growth worldwide and particularly in developing nations.  History has taught us that as the GDP of a nation grows and by extension the income level of the citizens, one of the first things people do is improve their diets, eventually leading to greater meat consumption. According to the USDA, over the past 40 years globally the increase in per capita meat consumption has grown at a compounded annual rate of 1.56%[1], which is actually a bit higher than the growth in real GDP worldwide for the same period.  Consider then that the population of the world is projected to increase by another 28% between now and 2050 and that the income levels of the developing world are projected to grow the most rapidly, it would appear the potential for livestock expansion, and by extension the demand for increase grain production is tremendous. The Worldwatch Institute believes from the turn of the century to 2050 that in sub-Saharan Africa and South Asia alone, the demand for livestock products will have doubled[2].

There has always been a bit of debate as to feed conversion rates for animals but even just looking at poultry and pork, where we should see the largest increases in production numbers, it is generally assumed that it will require one and one-half to two pounds of grain to produce a pound of chicken and three to four pounds of grain to produce a pound of pork.  Cattle of course convert feed at a much lower rate but of course in many place around the world, ruminant animals will be raised on grasses, including for the production of dairy.  Regardless, the amount of grain demanded to feed this growing base of animals will need to increase in proportion. 

Domestically we are already witnessing the impact on the growing world trade in meat.  One of the presenters at the event was the Vice President and Chief Hedging Officer from Smithfield, the largest pork producer in the United States.  If you recall, in 2013 it was announced that this company was being purchased by the Chinese meat company Shuanghui and several investment houses including Goldman Sachs, who are all evidently positive about the future of world trade in meat.  Regardless, he pointed out that in 2014 exports for pork have increased 9.4% above last year, beef 7.9% and chicken 1%.  Considering that the actual pork production year to date is virtually unchanged but beef down 4.8% and chicken down .5% it is not difficult to understand the run up in values that we have witnessed at the retail counter.  One of the more interesting statistics that he quoted was from sales data from one of the major grocery retailers who reported that even with pork cutout values more than 26% higher than a year ago, demand has only slipped 1%.  Have we reached the point that meat demand has become inelastic in this country? 

One final tidbit of information that I found interesting concerns the second largest of the BRIC countries, that being India.  We generally do not think much about India and meat consumption, as 80% of the population is Hindu who believe the cow is sacred and pigs unclean.  Of course, the current population of India is estimated to be 1.237 billion people, which would mean that there would be nearly 250 million that could be potential consumers of these meats.  That represents  80% of the population of the United States.

Suffice it to say, if the projections for rising world incomes are correct, the outlook for Ag is extremely positive, unfortunately we have a period of realignment to work through before that is realized.

[1] USDA

[2] State of the World 2011: Innovations that Nourish the Planet


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