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April 2014 Archive for 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 Full Report - Weather bulls hang on

Apr 30, 2014

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Wheat

Fundamentals – Kansas City led the wheat market higher yesterday and concerns about the weather outlook and the risk of a higher than normal abandonment of acreage provided the fuel.  Reports from the Wheat Tour were supportive but we will have to wait until Thursday afternoon for the full report. KC has now pressed up against the March highs while Chicago is back against the highs for this month.  We have seen a wave of profit taking overnight, I suspect inspired by month end evening up. 

There are no notable changes in the weather outlook at this point and while the US model does call for decent rains down through Texas and Oklahoma out in the 8 to 11 day forecast, I suspect the bulls will want to see something a bit more concrete than a forecast before they are ready to surrender. 

Overall news is relatively quiet this morning.  Export sales tomorrow and then we look out to the May 9th supply/demand estimates.  We should not be looking at any significant changes in the wheat numbers but of course this being the first "official" corn and bean production figures, direction in those market would be an influence. 

Technical – While that marked the highest close for this most recent rebound in July wheat we still failed to violate the April 16th reaction high of 7.18 ¼ and of course the March high at 7.25 ¼.  With the short-term oscillator very overbought and end of cycle counts lining up for this Friday, it would appear we should be very close to at least a corrective high but need to sit tight at least into the end of the week and look for a more telling price pattern.

Corn

Fundamentals – With the strength in the corn market yesterday we have nearby futures back up challenging the April 9th reaction highs and we did post the highest close to date for this advance.  The wet current weather is providing support but there is more and more discussion about the solid usage and the possibility of seeing the ending stock projection below 1.3 billion bushel on the May 9th supply demand report. I would fully expect the USDA to boost corn export another 50 million bushels.  Also supporting prices yesterday were stories about possible issues in Ukraine with credit to get the crops there planted.

It would appear that much of the current moisture will have moved out of the Midwest after tomorrow and by the weekend planting should resume full steam ahead.  By the planting progress report on the 12th we could still have between 40 and 50% of the crop in the ground.  The most current 6 to 10 day forecasts remain cool and moist which should continue to support values until we see more verification that crops are really getting in the ground. 

EIA weekly ethanol production numbers will be released this morning but unless we are significantly above the 260 million gallon production level there should be no reason to alter the current 5 billion bushels corn usage estimate. 

Technical – Very solid close in July corn yesterday, as we posted the highest closing price for this contract since the 26th of August last year.  That said, we have yet to push through the April 9th reaction high at 5.24 ¼ but with intermediate indicators positive that remains a possibility.  The next cycle dates ahead falls on the 8th and seeing that is just one day ahead of the supply/demand reports we could see the bulls try and hold their ground between now and then. 

Soybeans

Fundamentals – Looking around at the news it is difficult to find anything more than speculative buying to explain the rally in the bean market.  It is estimated that funds purchased another 7,000 contract yesterday.  I guess you could make the case that the delayed planting could push bean planting back a bit as well but that would seem to be stretching for a reason.

More reports of South American beans and meal loading for our shores but that is certainly not fresh news.  The export sales number in the morning could be interesting as we barely held in the positive column last week.

Technical – We did not press into higher highs yesterday in July beans but posted the highest close to date for this advance and for this contract.  We just have a short waiting game at this point to see if we are setting up for a cycle high.  The 270-calendar day cycle count sits out on Monday with a possible time/price square at 15.40.  If we continue up into the weekend I plan to at least be looking at a possible purchase of puts. 

Soybean Oil – July bean oil did bounce back for a slightly higher close yesterday but has really been quite directionless this week in face of the strength in the rest of its family.  Short-term indicators are oversold which could provide us with a few days for recovery bounce but a violation of 42.47 should confirm a turn back lower. 

Soybean Meal – New highs and a new high close was posted in July meal again yesterday and it would appear that we are on track to post a cycle high between now and next Monday.  As I commented yesterday there should be potential to make a run for the 507/508 level between now and then.

Cotton – July cotton posted solid gains yesterday and if we can close above the 93.50 level again today we should confirm another breakout higher.  If correct, I will be looking for prices to advance into the 21st of May with potential to take out the existing contract high at 96.76. 

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Morning Comments - Talk About a Slow News Morning

Apr 29, 2014

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Wheat

The wheat market struggled to maintain strength yesterday and while there has been two-sided action overnight, we are back in negative territory in the morning hours.  The crop conditions report is not to blame for the softness unless you could maintain the conditions did not deteriorate more than they did.  The good/excellent category slipped 1% to 33% and the poor/very poor increased 1% to 34%.  Note that overall, we still remain in a very similar position as last year at this time when good/excellent stood at 33% and poor/very poor at 35%.  The Wheat Quality Council begins their tour this week and should provide estimates on Thursday afternoon.

Export inspections were right at the top end of estimates at 23.2 million bushels.  This brings the year to date total up to 1.043 billion and with 5 weeks left we will need to average 26.2 million per week to reach the USDA target of 1.175 billion.

Corn

The corn market was able to maintain strength for a higher close yesterday and is in the plus column again overnight but so far we remained below the post April report highs.  Planting progress was a bit supportive coming in at 19% with the trade expecting something closer to 22%.  The average for this point in the year would be 28%.  Note that last year on this date, we had only planted 5%. There will not be any progress for the next few days as rains pass through the middle of the country but both the US and EU weather models appear to be in agreement that conditions will both dry out and finally warm up as we move into May.  We could still easily reach the 50% complete mark by the middle of the month. 

Export inspections were a bit on the disappointing side with only 45.5 million bushels loaded.  This brings the year to date total up to 1.102 billion.  I would expect the USDA to raise the estimate at least 50 million on the May 9th supply/demand report but with the current target we need to average 36 million per week for the next 18 weeks to reach the projection. 

It would appear that we have potential to try and stab into a higher high as we move into very early May but I continue to believe this overall rally is in it final stages. 

Soybeans

While nearby beans were able to hold on for a higher close yesterday it was not an overwhelming show of strength.  That said, prices are higher again overnight so the bulls have not surrendered. 

Fresh news is actually fairly quiet in this market.  There continue to be stories about more South American beans headed for the US but that hardly qualifies as new.  The first planting report was issued yesterday showing nationwide we have 3% planted versus an average of 4%.  Last year at this point we have made no progress. 

Export inspections bounced back from the previous week with 9.3 million bushels loaded bringing the marketing year tally up to 1.519 billion bushels.  With the target of 1.175 billion we will need to average just 3.4 million per week for next 18 weeks to reach that projection.

I continue to believe we should have our high posted in this market by next Monday.

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Daily Comments - Rain does not always make grain

Apr 28, 2014

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The grain and soy markets have begun this new week, the last for this month with strength, interestingly enough led by the soybean market.  Corn is being supported by weather as rains have now moved across the Midwest bringing what was finally a start to the planting season for many to a halt.  The forecast calls for wet and cool conditions through the balance of the week and of course expectations of additional planting delays.  Planters were rolling into Sunday and it will be interesting to see what kind of progress the government releases this afternoon.  Last week corn planting stood at 6% and many believe we will be in the 20 to 25% range now. 

The Ukraine situation did not get any better over the weekend but neither did it get worse.  Regardless, the tensions between the west and Russia have not improved either with the US pushing for additional sanctions against Russian particularly trying to target people/businesses with close ties to the Kremlin.  There is an election scheduled in Ukraine for the 25th of May and if they can avoid an all out civil war breaking out before then it would be a victory of sorts.  While there are still no reports of issues with spring planting or shipping business, this situation will continue to demand risk premiums from our markets.

Strength in the bean market would seem to defy most news reports concerning this commodity but that is certainly not the first time that has happened.  South American beans continue to be loaded for US destinations and the weather outlook would appear to be anything but positive for new crop.

On the economic front we will have the 1st quarter GDP numbers released on Wednesday and the FOMC is meeting Tuesday and Wednesday.  It is expected that they will announce further tapering with a cut back of another 10 billion in bond purchases each month.  Of course, everyone will be trying to read between the lines looking for an indication of when they may begin to raise interest rates.

With the month end just a few days ahead, less than favorable weather conditions, the Ukraine situation and then the May supply/demand reports and initial crop estimates on the 9th, we should have a choppy but probably price positive week ahead.

Wheat

Technical – The wheat market is not running away this morning but with the strength that is there we are challenging the mid-April high of 7.18 ¼ and within striking distance of the reaction high of 7.25 ¼ in July futures.  My intermediate indicators are turned back higher and it would appear that we may try and push through this overhead resistance and make a run for the 7.50 level.  Cycle dates ahead between the 2nd and 5th, which includes the completion of the 6th cycle of 90-calendar days from the November 2012 peak. 

Corn

Technical – July corn has been able to build upon the strength from last Friday and has now posted a higher high and higher low in each of the last 5 sessions.  Closing higher today would mark the highest close yet for this advance.  Short-term oscillators are overbought but intermediate indicators have been able to turn back up with the recent strength and we could have room to make a run now for targets up at the 5.30 level.  I have cycle dates just ahead on the 30th with the next then following on the 8th/12th

Soybeans

Technical – Seeing that we had closed right against the highs on Friday, July beans technically gapped higher last night but that was quickly filled in.  That said, prices have extended higher and we have touched against last week’s high of 15.12 ¼ and could easily strike the existing high for the swing at 15.21.  As I have commented previously, the 270-calendar day count from the August bottom is coming up rapidly here on the 5th of May and if we can continue to extend higher into then, it could produce a nice setup for a high.  We would have an actual time/price square on that date at 15.40, which would be a rally of $3.60 (4 x .90) in 270 (3 x 90) days.  I will remain patient into the end of the week. 

Soybean Oil – July bean oil has posted a solid trading range overnight and while still higher, has not maintained much of the strength.  My daily oscillator is still pointed higher and we should have room for a couple more days of advance but here we find the next cycle date sitting on the 30th.  This will mark the completion of the 5th cycle of 90 calendar days from the February 2013 high and 90-calendar days from the January low. 

Soybean Meal – Meal is back into the bull leadership role and overnight July futures have pushed into new highs.  With daily oscillators pointed higher we should have room for a couple more days of strength.  The 270-calendar day cycle count lines up for the 5th so a rally into this weekend could present a selling opportunity.  The next price target overhead is 507.50. 

Cotton – July cotton is lower this morning but we remain contained in last week’s ranges.  Ideally we have room for 3 to 5 days of corrective pressure and if correct, we should be poised for an advance into the 20th/21st if May.

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Weekend Commentary

Apr 26, 2014

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There used to be an appliance manufacturer that claimed its repairmen, or should I say repairpersons, were the loneliest person in town.  Of course they were alluding to the reliability of their product, even though it was probably assembled at the same factory as a number of other brands. But I propose that these lonesome employees could very well be dethroned from this solitary title by another group; mortgage originators. In many respects, you would have thought that this would have happened right after the financial meltdown in 2007 that was largely driven by mortgages, but the "extraordinary measures" initiated subsequent to the debacle that drove interest rates down to record low levels provided them with a new model with which to remain active, namely, refinance.  Alas, it would appear that this long running party is finally over.  The chart that I have included almost does not do us justice as it only plots what 30-year mortgages have done since the last high in 2006/07, but of course we have really been on a downward trajectory since the peak in October 1981 at 18.16%.  My wife and I purchased our home in 1983 and were ecstatic that we could find a mortgage at 8 ½ %, but it had to be a float to even find something that reasonable.   Well enough of the trip down memory lane.

 

This topic actually fits in quite well with last weeks’ column and the discussion about the impact that record low interest rates have undoubtedly had on farm real estate values.  While they have become a bit "squishy" in some areas, it would appear that the rise in mortgage rates in the housing sector over the past year to this outrageous 4.5% has had a much more dramatic impact.  According to data released this past week, for the first quarter of 2014, lenders originated $235 billion in mortgage loans, which is down 58% from a year ago and 23% from the last quarter in 2013.  Granted, part of this can be attributed to the harsh winter in the middle of the United States and also a slowdown in refinancing due to the higher rate, but the actual sales figures did not paint a pretty picture either.  Sales of previously owned homes in the month of March were down 7.5% from last year and mortgage applications to buy homes were down 19%. 

Many economists feel that a healthy and growing housing market is reflective of a healthy and growing economy in general. While it may be premature to call this a trend, it does appear to be a pretty obvious warning flag.  An additional problem is that the Fed really does not have much room to try and provide stimulus by lowering rates again, particularly when we are already in a tapering mode.  Taken a step further, there may be a debate as when, but I suspect most economists believe that rates will be moving higher, not lower, in the years to come.   

Here again, just another one of the conundrums we face when the financial wizards micro-manage the economy through monetary policy.  Every move by the managers will produce both good and ill effects, and at some point they all need to balance out and when they do some unfortunate soul(s) will feel the ill effects of the pendulum swing.  This is probably a good time for all business to take a serious look at their operations and assess where rising interest rates will negatively impact them the greatest and make decisions or plans now to hedge or reduce that risk.

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Morning Comments - Full - World Tensions/Weather Uncertainty keeping price supported

Apr 25, 2014

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Wheat

Fundamentals – As tensions rise in Ukraine once again so has wheat as we try and build a little risk premium back into the price and funds were estimated to have purchased around 4,500 contracts.  It does not appear that the skirmishes that are happening between the Ukraine military and those that are Pro-Russia are impacting the spring activities or shipping but as conflicts flair up and the rhetoric between Russia and the west increases so does traders anxiety. 

No real changes in the current weather outlook. There are two systems expected to pass across the plains and the Midwest over the next 5 to 7 days but just how much rain that may produce in the driest areas of the south and southwest is of course yet to be seen. 

Overseas weather appears to be solid though with good spring conditions across Europe and into Russia.  Russia reported overnight that spring grain planting had moved up to 15% compete which amounts to 4.8 million hectares.  This would be 1.1 million ahead of the pace last year.  Spring wheat accounts for 433.3k hectares of this. 

With a weekend upon us and more than enough uncertainly surrounding the wheat market, I suspect we should be able to hold gains today and next weeks trade will be dictated by the weekend moisture and of course the latest from Ukraine. 

Technical – Wheat is the market right now that appears to have the most ambiguous technical pattern.  May futures still remain over 20 cents away from the highs posted back on the 20th of March but recently we have settled into a trading range between 7.10 and 6.60.  Technical indictors provide somewhat of a mixed picture but look slightly positive and as I outlined yesterday I have groupings of end of cycle counts early next week and then again out between the 2nd and 5th of May.  With this very cloudy picture that we have presented to us right now, I intend to remain patient at least through the end of this month and wait for the market to tell us what it wants to do. 

Corn

Fundamentals – Corn was unable to hold the early strength yesterday in face of the tensions in Ukraine and fund buying of around 6,000 contracts.  That said, prices have snapped back nicely overnight and we have nearby futures pressing right up against what have been key levels of resistance now for the past month. 

The ongoing saga in Ukraine is a supportive factor, particularly with a weekend just in front of us but the weather uncertainly appears to be the bigger factor that is pushing and pulling on prices.  The current forecast through the balance of this month is calling for at least two fronts of moisture to push through which has provided some of the support.  Now granted, long range forecasts are not terribly reliable and will be subject to change a number of times but after May 1st, the current outlook calls for warmer and drier, which of course if correct should allow for a very rapid planting progress.  The planting progress report this coming Monday should be very interesting and I continue to believe the trade may be a bit surprised by how much corn will have gone into the ground this week. 

Outside of this, we do not appear to have much news to work with for the weekend. As such, I would not look for much feature in either direction today.   

Technical – May corn pressed against the 61.8% retracement of 5.06 ¼ yesterday and was repelled but here we are this morning attacking that same price level once again.  As I pointed out earlier this week, this contract has actually spent very little time above this level and the highest close we have posted to date has been 5.07 ½ and that was on the 1st of April.  In case you are curious the highest trade so far was 5.19 and that was back on the 9th of April just after the supply/demand report was released.  Indicators are leaning just a bit to the positive side right now which could keep this marketing in a sideways to higher bias as we reach out into early May.  While I would not try and read too much into it if it occurs, but if May futures did close above 5.07 today we will have posted an outside higher week. 

Soybeans

Fundamentals – After four lower closes in a row, nearby beans were able to climb higher for the close yesterday and have extended that strength a bit again overnight.  Seeing that we posted the lowest export sales figure for the marketing year yesterday and that you would really have to search into every nook and cranny to find news that could be construed as positive, I have to believe the strength is technically inspired and is just correcting a short-term oversold position as well as a little position squaring for the weekend.

In the southern hemisphere I see that the Argentina bean harvest has advanced to 42.5% complete which is double where they stood a week ago.  Last year at this time they were 56.2% complete.    

I continue to believe that the bean market has potential to work higher into the first week of May to complete the rally this year.  By no means is that saying we will be reaching into higher highs though.  Gauging from the apparent slowdown in demand and more than enough product floating around the world markets, I suspect the only thing that could push us much further would be weather related and longs may become a little impatient waiting for that the happen. 

Technical – May beans did press lower right into the idealized cycle date on the 23rd and are working on a recovery from there.  Overall this has actually been an inside weekly range.  Ideally, we are now poised to see prices climb generally higher into the 270-calendar day cycle count from the August bottom that sits ahead on the 5th of May.  If prices have worked higher into the end of next week, at a minimum I will be looking at the purchase of puts. 

Soybean Oil – It seems like it has been so long since we have seen beans, oil and meal all working in the same direction I am not sure how to take up but oil also appears to have posted a minor corrective low this week and looks poised for a short-term rebound.  Here are well, if we can see prices trend generally higher into the 5th, I will be looking for a sell opportunity. 

Soybean Meal – Ditto for meal as after pushing slightly lower into the idealized cycle date this week on the 23rd, May futures are attempting to climb back and with the short-term oscillator just turning higher we should have room for 3 to 5 days of rally potential yet.  As with beans, the 270-calendar day cycle count from the August low sits out on the 5th of May and moving sideways to higher into then could at least warrant the purchase of puts.

Cotton – After closing firmer yesterday we have cotton under pressure this morning and have basically erased yesterday’s gain.  The daily oscillator is pointed lower which ideally will give us room for additional minor pressure next week and a possible setup for a low by next weekend. 

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Morning Comments - The best cure for high prices is...

Apr 24, 2014

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Wheat

Fundamentals – Yesterday the wheat market appeared to be buoyed by corn but overnight it would appear that it has found independent strength.  Looking through the news we have to deal with, the most obvious reasoning for this is the weather uncertainly in the days and weeks ahead most specifically the southwest region of the wheat belt. 

Stats Canada did release acreage estimates this morning and while the total wheat number was towards the upper end of expectations, is it still a reduction from last year.  For all wheat it is projected that they will plant 24.936 million acres.  The trade was looking for a figure somewhere between 23.5 and 25.2 million and last year total acres were 26.257 million so the overall number will be down just over 4%.  . 

Exports sales slipped just a bit to 339,100 MT or 12.5 million bushels for 13/14 and 241,100 MT of 10 million bushels sold for 14/15.  Both were within trade expectations. For the current crop year the tally now stands at 1.141 billion bushels and we have another 6 weeks to sell another 34 million bushels to reach the 1.175 billion target. 

This market is very much in a state of flux and will probably remain that way through the weekend as we wait and see just how much rains falls in key areas. 

Corn

Fundamentals – The corn market provided us with a nice rally yesterday seemingly in response to the continued cool/moist weather outlook and concerns of the lateness of the planting.  I may be the one surprised but I believe next Monday’s figure will reflect a significant pickup in progress.  Regardless, traditionally it is difficult garner extended strength on "too much" moisture in the spring, partially because of a rain makes grain mentality and partially because we know just how quickly crops can be planted.  Add to this the fact that we have already seen prices trend higher over the past 90 days and it could be a challenge to bring in additional buying. 

It would appear that Canada will trim corn acreage a bit as well this year as they estimate total acreage of 3.369 million, which would be down 8.7% from a year ago.  This was right in line with the trade expectations and keep in perspective that Canada has seen the corn acreage climb steadily over the past several years and this number is still larger than what was planted just 3 years ago. 

Exports sales for last week were 2.8% higher than the previous week but it would appear that we have begun to level off.  Sales for the 13/14 marketing year came in at 618,900 MT or 24.4 million bushels.  This was not quite the middle of trade expectations and brings the marketing year total up to 1.698 billion bushels.  With 19 weeks left in the marketing year and only 52 million more bushels to reach the USDA target of 1.75 billion, it would seem logical that the USDA will need to boost the projection at least another 50 million bushels on future reports.    

Soybeans

Fundamentals – The major feature in the bean market yesterday was the unwinding of bull spreads, and while that appears to have stabilized overnight, I believe is just one more sign that we are reaching the end of the line for this bean rally.  The could remain yet another week to 10-days of choppy action as the last of the bulls hang on insisting to replay the same tune again and again but I believe many have become tired of hearing it. 

The Stats Canada number should be another warning shot for those willing to listen.  The acreage there is not huge and is projected to be 5.264 million this coming year but that is a 16.5% increase over last year and I believe another new record.  We all know the old saying that the best cure for high prices is high prices just as low prices will eventually cure low prices and it would appear that the world is ready to respond to several years of high soybeans and oilseed prices with increased acreage. 

Export sales set a new marketing year low and while not negative, we are coming pretty close.  Sales for 13/14 were 800 MT or 29,400 bushels.  Decreases from China of 55,000 MT basically wiped out all the other sales.  For the 14/15 marketing year we did manage to sell 4.3 million bushels but even this number was below expectations.

I would still like to see beans try and post one last rally into the first week of May to setup a possible selling opportunity but close attention needs to be paid to the downside right now.  Closes below 14.60 in May futures would potentially unleash a wave of long liquidation.

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Morning Comments - Full - Bent but not broken, yet

Apr 23, 2014

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Wheat

Fundamentals – The wheat market was able to post a nice little bounce yesterday, which I believe could be largely credited to the strength in the corn market.  While the overall crop conditions did deteriorate a touch, with rain forecast for a number of key areas after the weekend, there was not much else to hang on to. European markets are lower this morning with rains forecast to fall across much of the continent on the recent updates, which has translated to weaker price here as well.   

Wheat prices in the Ukraine, domestically have risen to their highest levels of the year due partially to the unrest but more specifically to the fact that their currency, the Hryvnia, has dropped significantly against the dollar.  Of course that makes them even more competitive from an export stance but that said, they have already moved the lions share of the past seasons crops.  It is now estimated that for total grains they have exported 28.96 MMT out of an estimated 33 MMT.  Last year at this date they had moved 20.5 MMT and total exports were 23 MMT.  As I reported yesterday, spring planting has been moving ahead very well both there and in Russia. 

While we have not suffered enough damage to the downside to really panic the bulls, this market has been struggling to gain any upward momentum now for the better part of the past month and with the large spec already very long in the Ag sector as a whole, it is going to require something fresh extend from here and for that matter even hold on to these levels. 

Technical – The wheat market was not really able to muster much follow-through from the strength yesterday reinforcing ideas that it was little more that a dead-cat bounce.  That said, we do remain above the April 11th reaction low, which in the May contract sits at 6.56 ¼ and the daily oscillator is once again reaching into the oversold position.  This could still offer us room for a corrective bounce over the next 3 to 4 days.  Monday the 28th will mark the 360-calendar days cycle count or full circle from the high posted last May and then between the 2nd and 5th of May we find the completion of the 6th cycle of 90-calendar days from the cycle high posted in November 2012. 

Corn

Fundamentals – Corn was the undisputed leader to the upside yesterday spurred on by the slower than expected planting pace and a sale of 240k MT of corn to Mexico.  That turned out to be enough to erase the losses from Monday and then some but provided little to extend the gains with overnight. 

Temperatures remain cooler than normal and the forecast is for much the same with rain predicted to move through early next week as well but make no mistake, planters are rolling.  Weather may not be ideal but the calendar says it is time to move and the market may be surprised next week as to how much progress has been made. 

While hardly worth mentioning the Rosario Exchange boosted their estimate for the Argentina corn crop to 23 MMT, up from 22.7.  The USDA currently has the production estimated at 24 MMT. 

EIA ethanol production will release later this morning and while it should not be as strong as a week ago, the trade is looking for something between 262 and 265k gallons a day of production.

I continue to believe this 5.00 level will be formidable resistance for the corn market and as I commented under wheat, with the large spec already heavily long in the Ag sector, it will require something fresh to occur to bring in additional money and buying.  This could very well be a year when the highs are posted earlier than would normally be expected.

Technical – Solid rebound in the corn market yesterday with May futures pressing right back against initial resistance that ranges from 4.98 to 5.02.  My daily oscillator has turned higher and should offer us 3 to 5 days of rally potential but if we can extend much beyond the 5.00 mark would be debatable.  Note that a 61.8% retracement of the recent break sits at 5.06 ¼ and we have spent very little time above that point.  Cycle dates ahead on the 25th and then the 30th.

Soybeans

Fundamentals – It would appear that all the news about a slowing world trade and demand for soybeans are finally coming home to roost and this market was the short side of spreads yesterday and has not been able to recover overnight.  So far, we have not violated any critical levels of support but it would appear that the bulls may be losing their grip.

The financing problems I mentioned yesterday where Letter of Credit are not being issued for boats waiting offshore in Brazil is a real problems and there is more and more confirmation of beans that were destined for China being resold into the US, Europe and even Africa. 

Yes, the domestic situation is critical with barely a pipeline supply projected and no, we cannot afford to provide any incentive for demand but tell me something new.  We are already looking at a record import number this year and a record acreage and the late spring could even compound that.  

I continue to believe that the bean market will have posted a high between now and the 1st week of May, which very well could be the high for the year.

Technical – The bean market is being bent pretty hard but has not yet been broken.  May futures are approaching key support once again at the 14.60 level but I have the daily oscillator just slipping into the oversold zone and seeing that we sit right on top of a cycle count, we should have room for one last bounce to the upside.  Ideally, this will be a rally into the 270-calendar day cycle count on the 5th of May and if correct, we should have a nice setup for a selling opportunity.  Keep in perspective that closes below 14.60 and the party would appear to be over. 

Soybean Oil – It would appear that is already the case in bean oil as with the pressure yesterday and again overnight, we have turned the intermediate indicator south.  Short-term oscillators are pushing into the oversold zone so there remains room for a bounce back into the end of the month and if that is correct, we should have a potential selling opportunity.

Soybean Meal – May meal is actually looking at the 4th day in a row of pressure and is testing moving average support but does remain above the key 473 level.  The short-term oscillator will be oversold within the next day or so and there should be potential for one last rebound into the 270-calendar day cycle count on the 5th of May.  

Cotton – The cotton market appear to be trying to carve out a base of support that could setup another push higher but we need to see a little more sideways action for confirmation.  The next cycle dates ahead are out between the 29th/30th and if we can tracks sideways through then we could be poised for another advance then into the 9th and possibly the 21st of May.

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Morning Comments - Final innings of the game?

Apr 22, 2014

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Wheat

Fundamentals – After beginning the week on a dour note, grain and soy markets are higher this morning.  If this is nothing more than a Tuesday undo bounce or if there is potential for a few days of rebound is yet to be seen but the overall action in wheat yesterday would point to additional weakness in the days ahead.

While there absolutely remain a number of dry areas in the southwest, forecasts point to additional moisture this coming weekend and beyond.  On the weekly rating, the good/excellent category actually remained unchanged at 34% while the poor/very poor increased 1% to 33%.  Note that a year ago at this time, the good/excellent rating stood at 35%. Spring wheat planting has inched up to 10% complete, which is 9% behind the average.  The only two states that have actually made much progress are Idaho and Washington and they basically skew the numbers at this point. 

Planting of spring crops moves ahead in Russia through.  They have reported that total spring crops planted has reached the 11.5% complete mark of a projected 3.7 million hectares.  So far they have planted a total of 281k hectares of spring wheat, which is 2.1% of the projected total and is 90k hectares ahead of last year.

Export inspections last week slipped a bit below the 10-week average to 18.2 million bushels.  Year to date now stands at 1.02 billion bushels, which means we will need to average 25.8 million per week for the next 6 weeks to reach the target. 

The US and European weather models have come closer into agreement and both call for additional moisture and cool temperature to return this coming weekend. 

Nearby wheat still remains above the mid-month lows at the 6.56 level but I believe this will eventually be violated as we correct lower into May. 

Corn

Fundamentals – The corn market has also been able to bounce overnight partially supported by a lighter than expected planting pace but more so I suspect it is just a Tuesday bounce.  The planting report could be taken as one of those glass half full or half empty kinds of thing.  The bear would maintain that planting doubled in the past week to 6% while the bull would say that planting only increased 3% and is 9% behind average for this date.  Of course they are both correct but kind of a moot point as we know planters will have kicked into high gear post Easter and the progress should be big this week.  As you would expect, most of the progress last week was in the southern states.  As I commented under wheat, the updated weather models call for cool wet condition to return this coming weekend but we should still have potential to reach the 35 to 40% complete level between now and then and if correct, will not give bulls much to hold on to. 

Exports inspection were excellent coming in at 63 million bushels, well above the 10-week average of 45.2 million.  Year to date we have now pushed above the 1 billion bushel mark to 1.055 billion.  With the current estimate we have 695 million bushels to ship over the next 19 weeks meaning we will need to average 36.6 million per week.  As a point of reference, a year ago at this date we had shipped a whopping 470 million bushels and for the marketing year in total shipped 731 million. 

The breakdown over the past couple days should have confirmed that we have a reaction high in place but we already sit in an oversold enough position to warrant a corrective bounce.  If correct, I will intend to view such as a selling opportunity with potential to see prices move lower into the end of May.

Soybeans

Fundamentals – The bean market suffered the least amount of technical damage yesterday but that seems to be just delaying the inevitable.  Maybe I am looking to the wrong sources but I have a difficult time finding anything positive for this market right now other that the fact that we are dealing with a very tight domestic supply.  Don’t take me wrong as I recognize just how critical that is but we have been talking about it ad nauseam and trading it for the better part of the past three months so everyone is quite aware of the situation. 

Part of the selling yesterday stemmed from reports out of Brazil that up to 20 vessels that are supposed to be loading for China are being held off shore until Letters of Credit arrive. No Money, No loading.  On top of that there were additional stories of people working to divert ships not only with beans but also meal to the United States and this from both Brazil and Argentina.  As I have commented before, I believe the old saying that when you know about a problem far enough in advance, there will never be a problem continues to hold true.

There is no official nationwide report yet but several states have released planting progress numbers.  Alabama stands at 3% vs. a normal 2%, Arkansas at 7% vs. 13%, Louisiana at 33% vs. 26%, Mississippi at 14% compared to 26% and Texas at 21% vs. an average of 52%. 

Export inspections continue to dwindle as we shipped only 5.1 million bushels this past week.  Granted this brings us to a total for the marketing year of 1.509 billion bushels meaning we only need to ship another 70 million bushels over the next 19 weeks to reach the projection.

We could still chop around through the balance of the month, but I continue to believe this market is like an aging athlete who just does not want to hang up the cleats and whether they like it or not, we are in the bottom of the ninth with two outs.  Somebody could squeak out a single here or there to extend the game but the end is near.

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Morning Comments - Full - Monday Morning Blues

Apr 21, 2014

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The long weekend is behind us and the bulls do not have much to hang on to this morning.  While far from settled, there is nothing new happening in Ukraine and domestically the weather for the balance of the week looks favorable for field work/planting.  While the quantities were pretty limited, here in Northern IL I have had reports of both corn and beans planted and seeing that the weekend rains were more miss than hit, you can be assured that there will be a fair amount of seed going into the ground this week. 

Next weekend will be the real question mark as current forecasts call for a cooling of temperature once again and even the possibility of snow across parts of Iowa and into Wisconsin.  Right now the US and European models are not in agreement in this so the confidence level is not great other than it should cool off.

 Weekly conditions and planting reports to be issued this afternoon. Wheat traders expect overall conditions to deteriorate another 1%.  Nationwide planting progress for corn is expected to come in between 9 and 12% complete, which would compare with 19% normal for this date. 

Internationally, spring work in Europe and the FSU continues to progress well and in Europe where it has been leaning to the dry side, moisture did fall over the weekend.  The Brazilian bean harvest is now estimated to be 90% complete with Argentine beans 21% complete.  Argentine corn harvest is estimated to be 20% complete. 

In China for March, bean imports were up 20% from a year ago, corn imports down 79.7% and wheat imports up 86.3%.  Soy oil imports (48.1k MT) were up 26.4% while palm out imports (538.9k MT) were down 23.5%. 

Last week funds added to their long bean positions, reduced their long corn positions and reduced net longs in wheat. 

Realistically, none of the above news would really seem to warrant the pressure we have this morning but I suspect this is just reflective of a tired bull.  Note that the beans did try and trade higher but failed which is classis exhaustion type trade.  We should see a little more choppy action over the next week to 10 days but it would appear we are setting up for lower prices in May. 

Wheat

Technical – Solid pressure in the wheat market overnight and it would appear that we have at least a B wave reaction high in place and should be poised to work lower now into May.  In actual price action we have gone from somewhat of a hook reversal to an inside day and now a push through the bottom end of both of those days.  Classic negative action.  As long as we close below 6.84 today we should have the stage set for a push down to at least the 50% retracement of 6.38 ½.  The next cycle dates ahead lay on the 28th/1st

Corn

Technical – As I noted last Thursday, May corn had slipped down and closed below the 21-day moving average for the first time since the 22nd of January and that we would need to bounce back above that line for the close on Monday to negative a bearish signal.  Right now the signs are not looking good.  Failure to do so will open the door for a push down to at least the 50% retracement of 4.67/4.62.  While this should be a choppy affair and unfold over a months time with the next low ideally out around the 29th of May, I am not interested in chasing sales lower.  2 to 3 day rebounds should provide selling opportunities.  My next minor cycle dates sits on the 25th

Soybeans

Technical – We have reasonable selling pressure in the bean market this morning after early strength but we have seen this type of volatile action numerous times over the past several weeks and it has primarily been market noise.  Realistically we will need to see May futures dive down and begin closing below the 14.60 level before we confirm a high and I suspect we have more choppy back and forth action before that occurs.  As I have pointed out previously, I have cycle dates ahead on the 23rd and then the 5th of May and ideally we will be posting our ultimate cycle high at that later date. 

Soybean Oil – May bean oil also reversed from early strength overnight and is beginning to look a little top heavy.  Intermediate indicators have just entered the overbought zone and if we can hold and bounce back another time into the cycle dates ahead on the 23rd we could have a decent setup for a sale.

Soybean Meal – It would appear that we could be lining up a peak for the entire bean complex in the very near term as meal is also acting top heavy and indicators are at or very near the overbought zone.  Cycle dates ahead on the 23rd and then the 270-calendar day cycle count on the 5th and I will be watching for signs of a possible sale during that time frame. 

Cotton – May cotton has extended the weakness from the end of last week and with the daily oscillator turning lower, we should have room for several more days of pressure.  There remains a possibility that we could push down to the 50% retracement of 87.27 before the end of this week.

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Weekend Comments - Time to sharpen those pencils

Apr 18, 2014

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Understandably, farmland values have been a popular topic of discussion over the past six monthsas prices appear to have leveled off in many areas of the country and in some regions have even witnessed a little slippage.  In Iowa, the average price of farmland sold in the monthof March was $8,286, which wasdown from $8,758 six months prior and $8,690 twelve months ago[1].  In their February Agricultural Newsletter, the Federal Reserve Bank of Chicago noted that in the Seventh Federal Reserve District, which encompasses much of Iowa, Wisconsin, Illinois, Indiana and Michigan, the annual increase in "good" farmland values had increased 5% in 2013[2].   A 5% increase certainly does not constitute a situation that would send shudders down the spines of farmers, investors or lenders, particularly with 10-year notes yielding 2.73%. But they also noted that this was the smallest annual gain since 2009, which of course was at the height of the recession and the second lowest increase of the past decade.  According to Farm Credit Services, 6.7% of Iowa farm auctions failed to sell in 2013, which was twice the number of the previous year. How does this compare with recent trends? According to the USDA, between 2009 and the middle of 2013 in a number of Midwestern states, the price of farm ground more than doubled, prompting many fears of a bubble in the making.  The Federal Advisory Council who provides input to the Federal Reserve warned that the price of ground was "veering further away from what makes sense from a production standpoint" and that there could be a "bubble resulting from persistently low interest rates."[3] (Emphasis mine.) 

I was reminded of this during the past week as I had the opportunity to hear Robert Zoellick speak at a luncheon.  If that sounds like a vaguely familiar name, he served in both Bush Administrations, as well as in a number of different roles for Reagan, including the Department of the Treasury, the Secretary of State department, Deputy Chief of Staff and President of the World Bank.  As it turns out Mr. Zoellick was born and raised in Naperville, IL back when it was still basically an agricultural community. As such, Mr. Zoellick maintains an interest in Ag and understands its critical importance from an economic and world position, which is lost on many in Washington today.   While the topic of conversation was not about Ag, noting that there we some in attendance from the Ag community, he did make reference to the price of farm land and the distorting influence that the current monetary policy appears to have had.  I was able to query him briefly after the lunch about that topic and his response was that it appeared that values had become a bit "frothy."  He is still a politician, after all. 

With world grain/soy production numbers on the upswing, demand from sectors such as energy and especially ethanol flattening and the prospects for interest rates to trend higher in the coming years, all would appear to reinforce that farm values are indeed "frothy" and in need of a slowdown, possibly even a correction lower. But are we at risk of witnessing the kind of debacle we experienced between the mid-to late 1970’s through the mid-1980’s where prices were cut by more than half?  According to many economists, the overall debt ratios in the farm sector are significantly better than they were at that time. Even if interest rates head higher in the years ahead, with overall inflation virtually nonexistent, I do not believe there is anyone who is calling for rates in the double-digit range and I would not look for any kind of debacle as we witnessed back then.

I continue to maintain that we have entered a re-adjustment period in American agriculture.  We have just experienced growing demand for over a decade that moved us to record profitability and of course record operating expense. With that demand engine throttling back to a slow idle, we need to adjust other plans and expectations as well.  While farmers have not accumulated the kind of debt loads seen in the 1970’s, there has been a tremendous amount of working capital used for real estate, buildings and other steel and that could cause a real strain on cash flows moving forward. 

Throughout the winter months as I have spoken at meetings, the message that I have tried to deliver is that when you are fortunate enough to be farming during one of the demand cycles, there is a tendency to become just a little lax on some of risk management skills, particularly marketing, as we always seem to get that second third or even fourth chance to get things done.  The same applies to our financial relationships, as lenders tend to be a little less demanding, particularly since you can become more of a depositor than a borrower.  If I am correct about the re-adjustments just ahead, the time is upon us to have your operations back in tip-top financial and management shape as the game is about to become a bit more strenuous and the refs may not be as lenient in making the calls.



[1] Ag Professional – Iowa farmland prices fall more that 5 percent

[2] Ag Letter – The Federal Reserve Bank of Chicago

[3] WSJ – Falling property Values hint at Trouble on the Farm

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Daily Comments - Full Report - Markets Unsettled for a Long Weekend

Apr 17, 2014

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The grain markets will be closed tomorrow in observance of Good Friday so with this being that last daily comment of the week, we wish you a Blessed Easter.

Wheat

Fundamentals – The volatile situation in Ukraine provided the fuel to take the wheat market higher yesterday morning and the increased chances of rains in wheat country in the days ahead diverted their attention and enthusiasm late in the day and prices turned back lower.  Prices are higher this morning as we balance out those two forces and I suspect that traders will be most interested in evening up positions for this long weekend. 

This week I had the opportunity to hear Robert Zoellick speak at a luncheon.  If that sounds like a vaguely familiar name, he served in both Bush Administrations as well as Reagan’s in a number of different roles including the Department of the Treasury, the Secretary of State department, Deputy Chief of Staff and President of the World Bank.  As you might suspect, he has some experience in world affairs and has personally met Putin on a number of occasions.  When asked about the possibility of Putin actually invading Ukraine, he did elaborate on Putin being a throw back to at different era with aspirations of a greater Russia, but also said, he was very much a pragmatist and knows he can ill afford to alienate the west and of course the last thing he would want would be to have Russia caught in a bloody quagmire in Ukraine.  While that does not assure that it cannot happen, it would seem that he will push for diplomatic solutions.  This will continue to be a volatile input for the grains markets and could easily create long-term issues as I spoke of yesterday but, as is often the case, the media appears to be inflating the overall situation. 

Export sales were decent for both old and new.  For the 13/14 crop year we sold an additional 438k MT or 16.1 million bushels.  This brings year to date up to 1.129 million bushels.  With 7 weeks left in the marketing year we only need to sell an additional 46 million bushels.  For the 14/15 marketing year we sold 359.9k MT or 13.2 million bushels.  

If rains do materialize in wheat country over the weekend, I believe it could be a challenge to hold this market higher for much longer. 

Technical – After reaching up and completing a 78.6% retracement at 7.09 ½ yesterday, May wheat reversed to close lower. While it was not an outside day and prices have bounced this morning, it may have been a warning flag that this rebound is exhausting.  I have cycle dates that line up for both today and Monday if the bulls cannot regroup and push us up through the existing highs at 7.23 ½, we should be set for a second swing lower. 

Corn

Fundamentals – The prospect of warmer temperatures in the weeks ahead was enough to make the bulls run for cover yesterday.  Many in the trade are looking for corn planting to kick into high gear and believe that we could still have 40 to 45% of the crop in the ground by the 1st of May.  We continue to hold key support levels but are walking dangerously close to the line at this point. 

The ethanol numbers for last week were actually quite solid and should have provided support.  For the week ending April 11th, we averaged production of 939 million gallons a day, which should equate to just over 99 million bushels of corn.  This was up 4.8% over the previous week and marked the largest grind of the calendar year.  Additionally, after 4 weeks of rising inventories, stocks were down 19 million gallons and actually stand at 9% below a year ago. 

Export sales fell within the range of trade estimates.  For the week ending April 10th, for 13/14 CY we sold 601.9k MT or 23.7 million bushels.  Year to date this bring us up to a total of 1.676 billion bushels just 74 million below the target of 1.75 billion bushels.  With 20 weeks left in the marketing year, this means we only need to average 3.7 million per week.  For the 14/15 CY we sold 7.6 million bushels.   

Technical –Yesterday, May corn pushed down again the 21-day moving average and held but this morning we have been able to violate this line, which is crossing at 4.96.  Now, we could easily bounce back for the close and the selling could be reflective of bulls wishing to even up in front of this long weekend but it would appear that we are very close to rolling this market over.  Cycle dates do line up through the weekend and ideally we can try and rebound on Monday.  If that is the case, I will be potentially be looking at a sale at that time. 

Soybeans

Fundamentals – The bean market continues to milk higher highs out of the same concerns and stories but I see less and less in the news that backs this up.  There is talk that China has cancelled another 8 to 10 cargoes of beans from Brazil and I understand that the first vessel of beans from Argentina headed for the US is now loading. 

The July/November bean spread has pushed out to an inverse of $2.70 which is not a record but I believe is the third highest ever.  While it may not amount to a hill of beans, no pun intended, I have read stories that farmers in the south are looking at switching to early maturity beans to try and capture the old crop premiums.  If you could harvest beans in August instead of September there is a possible $1.20 premium.  Of course if the early beans yield 4 bushels less, that price premium is eliminated and with the lateness of the spring, I cannot imagine we will see much of this. 

Export sales were not a marketing year low but I believe they were the second lowest at 19.2k MT or 700,000 bushels. Of course it is another 700k bushels and moves us to 59 million bushels above the USDA projection of 1.580 billion.  Sales for the 14/15 CY came in at 400.7 MT or 14.7 million bushels.

Technical – Higher highs again overnight in the bean market but May futures were just a few cents shy of filling the gap on the spot chart at 14.34 ½ before turning back lower.  While I suspect that sell off was inspired by the upcoming long weekend, I continue to believe this market should be extremely close to a peak.  Cycle dates ahead on the 23rd and the 5th and I will be watching for confirmation and a possible sell opportunity during that time frame. 

Soybean Oil – Exports sales at 5,400 MT, which leaned to the low end of estimates.

Very solid close for bean oil yesterday as May futures almost reached up to complete a 78.6% retracement at 43.94 but we found no follow-through this morning.  Here as well, I suspect the long wants to take a little money off the table for the weekend but it would appear that we should be very close to completing this advance.  Cycle dates line up between the 21st and 23rd and if we can kick back higher early next week we could be presented with a selling opportunity.

Soybean Meal – Export sales for 13/14 at 36,600 MT, which was well below the lower estimates and for 14/15 we sold 84,000 MT. 

May meal was able to eek out a slightly higher high again this morning but has turned back lower as the day has progressed.  Same situation here as in beans and meal and I believe this overall rally is just about complete.  Cycle dates ahead on the 23rd and the 5th and I will be watching for a sell signal during that period.

Cotton – Export sales for the week were 84,700 rbales. 

Not much feature here in the cotton market as we have remained trapped inside last weeks range.  Short term we appear overbought but the intermediate indicators are nearing the oversold level so I would not expect pressure to be big or long term.  Cycle dates line up through the weekend and then again on the 24th/25th.

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Morning Report - The Bull Fights for Another Day

Apr 16, 2014

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Wheat

Fundamentals – As the news coverage of the turmoil in Ukraine expanded and in some instances was hyped yesterday, so did the level of uncertainty with wheat traders and prices accelerated higher.  Seeing that there appears to have been no issues with grain shipments or fieldwork, this would appear to be a What If? situation.  What if the fighting expands and they begin to tie up the transportation system for the military?  What if Russia makes a full-scale assault?  What if the West intercedes?  I am certainly not qualified to provide answers to these kinds of questions, but keep in perspective that any or all of them could become moot points and if we have already built in a risk premium, the greater risk would then return to the downside. 

One interesting note on the Ukraine topic.  I was with a good friend yesterday who is in the international seed business and most specifically; they conduct a tremendous amount of business with both Ukraine and Russia.  As you would suspect, the seed for this crop year is already there but for them, the concern rests with 2015.  Needless to say, they are watching the situation very closely and if the atmosphere continues to deteriorate, will trim back on ideas for supply needs a year from now.  If that is the case, the real effect on the world grain markets will potentially be in 2015 and beyond, not now. 

While significantly quieter than yesterday, prices are higher again this morning but still remain below the highs posted back on the 20th of March. 

Corn

Fundamentals – If the rally in the wheat market were being driven by the uneasiness over the situation in Ukraine, you would suspect that corn would be give the same treatment but that was not the case as prices closed near unchanged and are flat once again this morning.  I believe the reason is two-fold.  One, funds already hold a quite long position in this market and we remain towards recent highs so there are fewer shorts to scare.  Second and more important, the weather outlook appears to be improving and a solid pickup in spring work and planting will be expected from this weekend forward. 

We will have the weekly ethanol report released today but other than that, little else to drive the corn market for now.  I continue to believe we are very top heavy and should confirm the completion of this advance between now and the end of the month.

Soybeans

Fundamentals – Beans needed a spark for fresh news if we were to reinvigorate the buying again and that came via the crush figures yesterday.  During April we crushed 153.8 million bushels, which was above the trade estimate of 146 million.  This number was 12 million above March and 16 million above a year ago.  As we have witnessed several times recently, with the critically tight situation we have it does not require much to send this market higher and while there is no denying this was a positive figure, the trend should be lower through the balance of the year.  Funds were buyers of around 9,000 contracts yesterday. 

As I have commented previously, I continues to believe there remains a possibility that we could push the nearby bean futures up into the 15.35/15.45 zone between now and early May as we complete this rally and the strength yesterday and overnight has moved us again into striking distance.  Even an aging and tired boxer can get in a few good jabs late in the fight, but eventually the exhaustion sets in and the other just needs to bide his time until that happens.

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Morning Comments - Looks like Christmas Morning Should

Apr 15, 2014

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It is April 15th and here in Northern Illinois and points north we have been given a fresh coating of white fluffy snow.  While that can be exciting to see around the 24th of December, it is certainly not a welcome site when planters should be rolling in the field.  It also seems like a cruel joke on those who have not filed their 2013 taxes yet.  Anyone who maintained it would be a cold day in hell before they got those in have no excuses left.

Wheat

Fundamentals – While off the extreme highs, the wheat market did close strong yesterday on concerns of the renewed tensions in Ukraine and on the less than ideal weather for the emerging winter crops.  Too early to say if there was any damage done in the plains and south states with this recent bout of could weather but the overall crop has not been getting any better.  On the weekly conditions reports we find 32% of the crop sits in the poor/very poor category, which was up 3% from a week ago.  We have a comparable amount, 34% that is rated good/excellent, which was down 1% from a week ago.  Overall this is not far behind the norms for this time of year but nothing on the horizon would make one think we will be seeing major improvements. 

Weather in other parts of the world has been more conducive to planting progress as Russia reported that spring grains planting is ahead of last years pace with 2.1 million hectares in the ground which is 6.4% ahead of last year.  They intend to plant a total of 31.8 million hectares to spring crops, which would be an increase of 1.7% over last year.  It was also reported overnight that the total grain production for Ukraine for 2013 was 14% higher than the previous year and as of April 1st, the total grain inventory stood at 12.3 MMT. 

Very solid export inspections were reported for wheat yesterday.  For the week ending April 10th we had shipped 25.1 million bushels, which was above the range of estimates as well as the 10-week average of 19 million.  Year to date, we have now shipped just over 1 billion bushels and will need to average 24.9 million per week to reach the USDA target of 1.175 billion.  There are only 7 weeks left in the marketing year. 

Corn

Fundamentals – The corn market held on for a nice bounce yesterday and for May futures, it was actually the 3rd highest close since we began the rally. That said, we have surrendered much of the strength overnight.  While you might suspect that the trade would begin to feel just a but unsettled about the current weather, the forecasts does show warmer temperatures on the way and we all know how fast a crop can be put into the ground once the planters begin to roll. 

There were no surprises in the progress last week as nationwide we have 3% of the corn planted.  The 5-year average for this date is 6% and last year we only stood at 2%.   

Exports were solid and right at the upper side of expectations at 57 million bushels.  Next week we should easily push north of the 1 billion bushel mark as the current to date now stands at 990.92 million bushels.  With the target now set at 1.75 billion bushels we will need to average 38 million per week for the next 20 weeks. 

While the is nothing out and out negative that we have to contend with right now, the news that has rallied us into these levels is becoming tiresome and without some fresh soon, the path of least resistance could be lower. 

Soybeans

Fundamentals – Beans would appear to have the least amount of news to rally on but we did hold gains yesterday and have extended again overnight.  We will have the March crush number released later this morning and the trade is looking for a supportive figure around 146 million but unless it is higher than that, you have to think the number has already been factored in. 

While there is not a nationwide planting number released yet, we do see that Arkansas reports 4% complete, Mississippi stands at 6% and Louisiana is up to 38% complete. 

Exports inspections were basically halved from the previous week coming in at 9.8 million bushels.  This was also the lowest figure since very early in the marketing year before the harvest was into full swing.  Of course we do not need to move many beans to reach the projection as year to date we stand at 1.504 billion bushels and only need to average 3.8 million per week to reach the 1.580 billion target. 

I suspect the rally in beans is more technically inspired than anything else and as I have commented previously, I believe we are in the final acts of this bullish performance. 

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Morning Comments - Full - Building a lithe Ukraine Risk Premium Again

Apr 14, 2014

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Wheat

Fundamentals – Overnight markets have witnessed a rebound as we begin this new and shortened week with wheat leading the charge.  While the abnormally cool weather is providing support, the strength in wheat appears to have been stimulated by the flair-up in tensions in Ukraine over the weekend, with government troop squaring off against pro-Russian separatists in a number of areas.  I have read reports this morning that some Ag analysts in Europe still believe financial and other uncertainties over there will lead to a reduction in both the corn and wheat production.  Hard to tell if these are people with first hand knowledge or are just trying to justify a market bias.   According to the Ag Ministry in Ukraine, they have shipped a total of 28.338 MMT of grain since the beginning of their marketing year, which began on the 1st of July.  This compares with the same period a year ago at 20 MMT, so the unrest has not impacted the movement of grain at least. Additionally, Russia has shipped 21.488 MMT of grain during that same period which is reportedly up 47.5% over the previous year.

Domestic export inspections are estimated to fall in the 14 to 20 million bushels range.

As I have commented previously, the situation in Ukraine is far from settled and we need to expect intermittent flare-ups and market reactions from time to time.  This one happened to coincide with a short-term oversold position in the market so unless this escalates, I would expect the reactions to be short-lived.  

Technical – In what looks like a mini short-covering panic in the early morning hours, May what pushed up high enough to take out last weeks high, albeit briefly.  This leaves our short-term picture a bit fuzzy as we did hold at the 38.2% retracement of 6.58 ½ last week and short term oscillators are oversold and trying to turn higher.  There is a possibility that we could see a couple more days of offensive trade with room to poke into the 6.91 to 6.99 retracement range.  That said, I continue to believe that will make a trip down to the 50% retracement at 6.38 ½ before this overall correction is complete.  Cycle dates ahead on the 21st, which will mark the completion of the 2nd cycle of 90 calendar days from the October peak. 

Corn

Fundamentals – While I suspect the renewed Ukrainian tensions helped support the corn market overnight as well it would appeared that wheat pulled this market along for the ride.  This is not to say that the continued solid demand and most specifically, the less that ideal spring weather is not proving support.  There was limited progress made across the Midwest over the weekend but It would appear that there will be little if any made for the balance of the week.  There will be a planting progress report issued this afternoon and is expected to show around 2% of the corn planted nationwide vs. 7% a year ago.

Export inspections are expected to fall in the 35 to 40 million-bushel range.

Trade will be closed on Friday for Good Friday and we could be in store for a somewhat quiet week overall with a possible up bias. 

I have not seen the report yet but I understand that Goldman Sachs has now turned bearish on the grain markets, regardless of the situation in Ukraine.   

Technical – The overnight rebound in corn keeps May futures above the 5.00 level which we have been gelling around for the past week or so now.  Short-term we sit in an oversold position and we could be in store for 3 to 5 days of strength.  I am not looking for anything major but there remains a possibility that we could still make a run for the 5.20/5.30 range before we have completed this overall advance.  Cycle dates ahead on the 17th and then the 24th/25th

Soybeans

Fundamentals –Beans have also caught a little bounce overnight supported by the same world tensions and less that ideal weather that has boosted the grains.  After two days lower and a push against support we are probably witnessing a little short-covering as well. 

Export inspections are expected to be in the 8 to 11 million bushel range and tomorrow we will see the March NOPA crush report.  It is expected to be in the 145/146 million bushel range, which should be supportive.

As with the other markets, we could be in store for a somewhat directionless week and as I have commented previously, we could see choppy volatile trade right through the end of the month.  

Technical – On Friday, May beans pressed right down against the 14.60 support level and we have appear to have bounced from this base again.  Right now this would appear to be the line in the sand and if we fail and begin closing below there, the bull party should be over.  My daily oscillator is almost back into an oversold position so if we can hold stable for a couple more days, we should be poised for another rebound.  I continue to believe there is potential to make a run for targets up in the 15.35/15.45 range making a run for that level into the end of cycle dates on the 5th could present a classic setup for a cycle high. 

Soybean Oil – Bean oil is also a bit higher this morning and so far remains within Friday’s trading range.  The indicators are just a mixed bag right here but intermediate indicators while losing momentum, are still pointed higher. Cycle dates ahead on the 22nd and then on the 5th of May.   

Soybean Meal –May meal pressed down against key support at the 473 level on Friday and it we appear to be finding support here once again.  My daily oscillator is very close to the oversold level and if we can hold here for a day or so, we should be positioned for another kick higher.  Cycle dates ahead on the 22nd/23rd and then the 5th and if we can swing upward into either of those dates, I will be on the lookout for a high. 

Cotton – Strength in the cotton this morning as well and with the daily oscillator turning higher as well, we should have a room for at least a couple days for rebound.  Cycle dates ahead on the 17th and a push up into then could present us with a sale. 

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Weekend Economic Front Page

Apr 11, 2014

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It only seems like yesterday that you could not pickup a business publication or turn on CNBC and Bloomberg television without being bombarded by tragic stories about PIIGS.  Of course I am not referring to the four-legged kind that have been devastated by the Porcine Epidemic Diarrhea Virus (PEDV) this past year nor any type of 60’ throwback slang referring to police officers. No, PIIGS is an acronym for the financially troubled nations of Portugal, Ireland, Italy, Greece and Spain.   While each of these countries suffered through various bank failures, political turmoil, threats of debt default and public scolding for their financial debauchery, Greece really seemed to embody the worst of the worst.  After becoming a member of the EU, that country borrowed and spent their newfound paper wealth with reckless abandon. But of course when the music stopped in 2008, that landing was especially hard for this small nation whose debt to GDP ratio eventually reached to a peak of around 170% in 2012. We were also introduced to another new term back then, Grexit, referring to the possibility of Greece leaving the European Union either by choice or less pleasant arrangements.  While there was certainly nothing funny about the situation in Greece, I remember after the meltdown finding a certain sense of comical irony as the other EU members, and particularly Germany, giving Greece very pubic tongue lashings about their financial irresponsibility all the while trying to squeeze in an extra shipment of Porsches’, Jaguars, Tag Heuers’ and cases of Bordeau.  It was not unlike the parent yelling at the child for bills he had accumulated after providing him a credit card and then telling him to head for Niemen Marcus to pick up a few things he might like.  

What brings this all to mind is that this week, four years after the initial bailout package and barely two years after the second and larger bailout package, Greece offered just over € 3 billion of new of longer-term government debt, which was met with tremendous interest.  Now, keep in perspective that in late 2011 when the crisis was reaching its zenith, 10-year Greek bonds nearly reached a yield of 40%, and the offering this week: 4.95%. It was estimated that there is enough demand lined up that they could have sold € 20 billion 

It is possible to take this as a sign that the world economy has really turned the corner. The country in question underwent some very drastic austerity measures, cutting over 52 billion from its budget and recently has even posted a positive balance of payments.  That said, unemployment sits around 27%, 25% of the citizens sit on top of the poverty line, suicides have increased dramatically and they still have debt to GDP ratio of over 150%.  Then again, it could be possible that investors are so willing to jump on a sub 5% yield from a country that still sits on edge of abyss because there is just nothing else out there worth chasing. To put it in perspective, other PIIGS are offering rates of less than 3%. Not to mention, if Greece was bailed out last time, the EU or the World Bank or somebody will throw them a line, right? 

I suspect what this actually reflects are the new norms of the world economy.  Abnormally low interest rates set by governments like the United States and the European Bank offer few alternatives, so money chases yield on debt that would never have been considered in the past, at least at these kind of returns.  I guess as long as everything limps ahead, all will be well, but I shudder to think about the discomfort that would ensue if any illness struck again.  Did I hear someone say China might have a case of the sniffles?

Morning Comments - On to weather

Apr 11, 2014

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Wheat

Fundamentals – We have reached the end of another trading week and the overall news is fairly quiet this morning. We have actually had more than our fair share of government revisions and announcements over the past 10-days so a little breather here is welcome.  The focus for should now increasingly turn to weather. 

The most recent weather updates that I have seen move much of the Midwest back to cooler than normal temperatures late this weekend and the latest 6 to 10 day forecast offers more of the same.  There is moisture that comes along with the colder temps but it would appear that for those in the far Northern Plains, that could come in the form of white moisture.

I understand that crop insurance adjusters are beginning to make their way into winter wheat fields so we should begin receiving updates as to the amount of abandonment this year.  If this is higher than normal, will that mean later group beans being planted on that acreage?  This possibility would exist but of course beans will need some moisture as well. 

I read this morning that planting progress has picked up very nicely in Ukraine and while much of the wheat they produce is winter, spring wheat planting has reached 95%.  Evidently the political unrest has not impacted Agriculture as some feared. 

The wheat market remains in a corrective swing lower and I suspect could continue working south through much of the balance of this month. 

Corn

Fundamentals – The corn market really did an admirable job of bouncing away from its lows yesterday in face of the pressure in the wheat and beans but that could have partially been spread trade.  There are scattered reports of planters rolling across the Midwest and certainly a fair amount of anhydrous being applied but with the moisture forecast to move in over the weekend, overall progress should not be significant.  While temperatures are expected to remain cool and moist through most of next week, some models are calling for that pattern to change by a week from now, and if correct, it should not take long to kick the spring work into high gear. 

Conab issued revised Brazilian crop estimates yesterday and boosted their corn estimate by 270k MT to 75.5 MMT.  Not a large adjustment but note that this number is 3.5 MMT higher that the most recent NASS/USDA estimate.

One final note this morning.  JCI China has reported this morning that the Syngenta strain MIR 162 could be very close to approval for import.  Evidently China has the last crop finally managed at this point.

Corn is struggling a bit this morning but nearby futures continue to hold above the 5.00 level.  While there could be room for a little more push to the upside, I continue to feel that this 5.10/5.30 zone will be significant price resistance and it would most likely require a weather issue to see much if any additional strength beyond there.  While there will always be a possibility of a weather related bounce, if that is what you are holding out for, that is realistically not sound reasoning for a market program nor would you necessarily be able to capitalize on such an event either.  As the old saying goes, the greedy become needy. 

Soybeans

Fundamentals – It would appear that we have some very tired bulls here in the bean market as prices have backed up now for the past day and a half.  While we have not done anything that would threaten the overall uptrend just yet, this market is going to need to be refreshed with some positive news fairly soon or is liable to topple over from its own weight. 

Reuters printed a story yesterday China has defaulted on another 500k MT of beans, which could be both US and Brazilian origin.  I guess that should not be a shock as we will likely hear this time and again through the middle of the summer, but on a slow news day it does attract more attention.  The overall economy appears to continue to slow in China, which psychologically at least will hang over both commodity and equity markets. 

Conab raised their estimate for Brazilian beans as well, pushing it up 640k MT to 86.1 MMT.  This compares with the most recent NASS/USDA estimate of 87.50 MMT and was reflective of a slight boost in the acreage. 

As I have commented previously, I believe the 15+ level in nearby beans and the 12/12.20+ level in November futures should be a point of significant resistance and baring a serious weather issue, could be very difficult to reach beyond.   

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Morning Comments - Full - Aftermath of the Report

Apr 10, 2014

The April supply/demand reports are not in the record books and seeing that we looked at the numbers yesterday I am not going into an inordinate amount of detail this morning.  Corn exports were boosted a full 125 million bushels to 1.75 billion, cutting the ending stocks number down to 1.331 billion.  While the export number certainly appeared too low before the report, the USDA may have overshot the mark with this change as there is by no means a shortage of corn around the world.  World stocks were lowered .47 MMT to 158 million after the Brazilian crop was bumped up 2 MMT and South Africa 1 MMT.  This compares with World stocks of 134.4 and 132.82 for the previous two years.  Additionally, world coarse grain stocks were increased .72 MMT to 192.18, compared with 164.73 in 2012/13 and 166.54 in 2011/12.  In both cases, this will be the largest stocks to usage ratio since 2009/2010. Granted, we have the risk of a planting and growing season in front of us but world inventories appear to be expanding.   

In wheat, the domestic estimate came in right on top of the trade estimate of 583 million bushels, up 25 million after a cut in feed usage and imports. On top of that world wheat ending stocks were bumped up 2.87 MMT to 186.68 MMT.  This is a full 10 MMT above a year ago but still 12.2 MMT below 2011/12. 

Just in the raw data, the domestic bean numbers were the most positive of the bunch as exports were boosted 50 million bushels to 1.58 billion, a new record, seed usage was bumped up 8 million to reflect the higher acreage and imports were pushed up to 65 million bushels, which would also set a new record and residual usage was cut 12 million bushels and stands at zero.  The net result was a projected ending stocks figure of 135 million bushels.  Keep in perspective that throughout much of last year, we were looking at a possible carryout of 135 million bushels and we were dealing with a tighter world bean inventory.  On the world estimates, the Brazilian crop was cut 1 MMT to 87.5 and everyone else left unchanged.  After usage adjustments the ending stocks were lowered 1.22 MMT to 69.42 MMT.  While that was a downward adjustment this compares with 2012/13 ending stocks of 57.87 and 53.58 in 2011/12.  This will be the highest stocks to usage ration since 2010/2011. 

Wheat understandably reacted lower to the figures but corn and beans were able to extend into higher highs for the move, but corn most certainly could not maintain the strength and beans, while higher were not really all that impressive.  And this in face of funds buying another 8,000 contracts of beans. Failure to react positive to positive news should always be viewed as a sign of a very tired bull.  If we cannot find another shot of adrenaline between now and the beginning of May, i.e., weather, it would appear that this advance has just about run the course.  

Wheat

Fundamentals – Wheat export sales just fell off a cliff and set a marketing year low at 41,800 MT or 1.5 million bushels.  We are winding down the marketing year with only 8 weeks left and we did sell 349,100 MT of 12.8 million bushels for the next crop year.  This brings current year to dates sales to 1.113 billion bushels, which is just 62 million behind the USDA target.

Technical – May wheat posted a big outside lower reversal yesterday and while we have stabilized overnight, it would appear that our corrective bounce is complete.   If we now violate the 38.2% retracement it should open the door for a push down to at least the 50% retracement of 6.38 ½.  Ideally we should be headed lower at least into the 21st where we find the 180-calendar day cycle count from the October high.  The intermediate indicators are not correcting any too rapidly which could stretch out a correction lower into the 30th/1st

Corn

Fundamentals – Corn export sales were a bit disappointing and this after the USDA gave us such a vote of confidence in their projections.  For the 13/14-crop year we sold 658,700 MT of 25.9 million bushels, which was down 31% from the previous week and 62% from the 10-week average.  This brings the year to date sales up to 1.652 billion bushels, placing us squarely 1 billion above were we were one year ago. With our new target of 1.75 billion and 21 weeks left in the year, we actually only need to average sales of 4.7 million per week.  Sales for 14/15 were 2.3 million bushels.

Technical – The corn market spiked higher after report yesterday but the strength was fleeting.  In the process, May futures completed a 38.2% retracement of the entire swing lower from the peak last June at 5.14 ½ and reached to a high of 5.19 before turning back lower.  While the overall action is disappointing for the bull, so far we have been able to maintain key support.  The 13 and 21-day moving averages that have guided this market higher since late January are crossing today at 4.98 and 4.92 ½ and the low so far this morning has been 4.97 ¾.  With the short-term oscillator still close to the oversold mark, there remains a possibility of another poke to the upside between now and the cycle dates on the 17th/18th.  That said, if we begin to close below the moving averages listed above, which continue to edge higher each day, the party is likely over. 

Soybeans

Fundamentals – Never say die.  For the week ending April 3rd, we sold an additional 2.9 million bushels of soybeans, bringing the year to date total up to 1.638 billion bushels.  Even with the boost in the projection to 1.58 billion we are 58 million bushels in the red.  I suspect that we imported more this past week that exported so to a certain extent, the number is a moot point.  Within the sales figures there were cancelations by unknown of 4.2 million bushels. Sales for 14/15 came in at 7.7 million bushels. 

Technical – May beans accelerated above 15.00 for the first time yesterday and on the spot chart, the first time above that mark since July of last year.  While still into new highs, the close was about mid-range yesterday and is likely indicative of a market that is losing momentum.  I continue to believe there is a possibility that we will not have posted our final high until we reach the 270-day cycle count from the August bottom that is on the 5th of May.  That said, I would look for choppy volatile action between now and then.  Additional cycle dates sit on the 11th and the 23rd

Soybean Oil – Export sales were 3,400 MT, which were toward the low-end of expectations and well below the 10-week average of 13.2k.

May bean oil did press into higher highs for this rebound yesterday and almost completed a 61.8% retracement of 43.06.  Even with a little overnight pressure, we remain above the previous reaction high of 42.35 and intermediate indicators point higher.  Cycle dates line up for Friday but is suspect we have room to advance beyond then. 

Soybean Meal – Export sales came in at 179,600 MT, which was about the middle of expectations.  The 10-week average is 192.7.

May meal did extend into a higher high yesterday but we could not hold that new real estate for the close.  As with beans, ideally we will not see our cycle high until the 5th of May but this market could very well just experience choppy volatile action between now and then.  Cycle dates ahead on the 11th, the 21st/23rd, which includes the 360-calendar day cycle count from the 2013 bottom and then the 5th of May. 

Cotton – Export sales were actually a negative 10,900 rbales. 

The cotton market is down flirting with the low side of its trading range and still looks like it could tip further south.  May futures should find support from 90.40 down to 89.65, which is a 38.2% retracement but if sell stops are triggered, we could see a quick flush down to 82.27.  The intermediate daily indicators continue to work lower and should be back into an oversold position around the first of May.  Cycle dates ahead on the 21st and then the 1st

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USDA Supply Demand recap

Apr 09, 2014

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April Supply/Demand Updates 

The reports issued this morning were positive for corn and beans and a little negative for wheat but in all cases, were within the range of estimates.

The only change that the USDA elected to make for domestic corn was to boost exports a full 125 million bushels to 1.75 billion. This was cut directly from the ending stocks which now stand at 1.331 billion and compares with the average trade estimate of 1.403.  If correct, this will be the largest export number for corn since the 2010/2011-crop year.

World corn stocks were cut just .47 MMT to 158 MMT which reflects the higher usage but also an increase in Brazilian production of 2 MMT to 72 MMT and 1 MMT in South Africa for a crop of 14 MMT.  Argentine production was left unchanged at 24 MMT. The trade was looking for a cut to 157.72 MMT.   

The largest number of adjustments not surprisingly came in beans. Exports were increased 50 million bushels to a record 1.580 billion bushels and seed was increased 8 million bushels to reflect increased acreage.  To counter balance this residual usage was cut 12 million bushels, taking it to zero and imports were raised 30 million to a record 65 million.  The net result is that ending stock were sliced down to 135 million bushels, which is basically the same number we contended with for much of the year last year.  The average trade estimate was 139 million.   

Argentine bean production was left unchanged at 54 MMT and Brazil cut 1 MMT to 87.50, which takes the world ending stocks down 1.22 MMT to 69.42 MMT.  The average trade estimate was 70.14 MMT. Keep in perspective that is still an increase of 11.55 MMT over last year.

Truly, there were no surprises in the domestic wheat numbers.  Imports were cut 5 million bushels, feed usage sliced 30 million for a net increase in ending stocks of 25 million to 583 million, which is right on the average trade estimate. 

World ending stocks were boosted 2.87 MMT to 186.68 MMT, which is a bit negative as the average estimate was 183.65.   

I believe the report does fits in well with an expected high in corn and beans between now and the first week of May. 

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Morning Comments - Report Day is Finally Here

Apr 09, 2014

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Wheat

Fundamentals – A combination of heightened tensions between Ukraine and Russia, the impending USDA report and the shut down of the Globex system at the CME, heightened the tensions and buying of traders as well.  Note that even with the all this news about Russia amassing troops on the Ukraine border, grain trade in the Black Sea continues on as normal and there has not been any unusual move in prices, i.e., big rallies.  Do they understand the situation better than our news outlets who would never miss the opportunity to inflate a story?

Wheat ratings were issued yesterday with no real surprises.  For winter wheat the good/excellent category sits at 35%, which is 1% below last year at this time and the poor/very poor is at 29%, which is 1% better than a year ago.

We have been anticipating the supply/demand report now since the release of the stock figures and we will finally see these numbers at 11:00 central.  Keep in perspective that this will only be an update for the 13/14-crop year, not a projection for 14/15.  We will have to wait until the 9th of May for that.  The average trade estimate for wheat ending stocks is 583 million bushels, which would be up 25 million from last month and world ending stocks are expected to be down .16 MMT to 183.65. 

Corn

Fundamentals – As I commented above, the combination of the unrest in Ukraine, nervousness about the report and then the shutdown of Globex appeared to bring in a bit of panic buying yesterday and pushed the corn market into new highs for the swing.  Basis levels at the Gulf have backed away in response. 

We have been talking about the supply demand estimates Ad nauseam since the March 31st grain stock report and thankfully that will be history at 11:00 today.  The average trade estimate for domestic ending stocks stands at 1.403 billion bushels, which would be down 53 million bushels from last month.  The range of estimates stretches from 1.306 to 1.478 billion bushels.  World ending stocks are expected to come in at 157.72 MT, down .75 MMT.   You have to expect what has become the typical nonsense for the first minute or so after the numbers are released, but unless the report is at one extreme of the range or the other we should settle down quickly.  There will be no estimates for the 14/15-crop so we are all left to crunch our own numbers until the 9th of May.

After the report, we can begin the focus on weather once again and once temperatures finally begin to warm, planters will be full steam ahead.  It is looking more and more like we could see prices hold gains through the end of the month.

Soybeans

Fundamentals – With the strength yesterday and overnight, old crop beans are pressing towards recent highs and November futures have been able to press into higher highs.  Hmmm, record bean acres and threats of a late spring to the north and new beans continue to advance?  Makes sense to me?

Much of the focus for bean imports centers on bringing South American beans into the US be we cannot forget that they can come from other sources as well.  Through February, we have imported over 11 million bushels of beans from Canada and that number has been growing.  From all destinations, it is now estimated that through February we have imported around 20 million bushels of beans and for the year this number could more that triple that.  Specifically how the USDA will reflect this in the report today is of course yet to be seen but if there is a place that we could find a surprise, it would most likely be in the beans numbers.  Hopefully that is not the case.  The average trade estimate for domestic ending stocks is 139 million bushels, which is only 6 million below March.  The estimate for world ending stocks is 70.14 MMT, which would be down .5 MMT from March.

Ideally we do not uncover any shocking news in today releases.  If that is the case, potentially we should see values gradually lose upward momentum and have our final high in place between now and the first week of May.

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Morning Comments - We are going to need to feed the bulls again tomorrow

Apr 08, 2014

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Wheat

Fundamentals – The wheat market was able to hold gains for the close yesterday and posted the first higher high in the past 7 sessions but we have surrendered a portion of the gains overnight.  All in all, it was a pretty uneventful session.

NASS delayed the weekly crop conditions report until today.  It is not expected to show much if any improvement with conditions in the south and west to remain predominantly in the fair to poor categories.  That said, the are forecasts for decent rains to move into the Southern Plains later this month which would of course be very beneficial.  The latest 6 to 10 day forecast keeps in the entire middle of the country in below normal temperatures. 

Export inspection for wheat came in a little higher than last week at 22.27 million bushels.  This brings the marketing year to date up to 975 million bushels, leaving us just 20 million shy of the USDA target.  

Corn

Fundamentals – The corn market struggled just a bit yesterday but certainly did no damage within the up trend and I suspect traders will be content to sit within this range now through the report on Wednesday.  We need to keep in perspective that the trade will be anticipating lowered ending stocks and if that comes in at the estimates, it will have already been factored into prices and we may not see a positive reaction to what could be positive numbers.  The average trade estimate for domestic ending stocks is 1.403 billion bushels. 

While the USDA has not begun issuing planting progress updates, individual states are and in the south, the progress is pretty comparable with last year but generally behind average.  Georgia reports 59% complete vs. and average of 61%, Louisiana at 91% vs. a normal 92%, Mississippi at 41% vs. 63%, Arkansas at 25% compared with 44% and Texas at 54% vs. a normal 52%. 

Export inspections were slightly behind a week ago but still respectable at 51.6 million bushels.  This brings the year to date tally up to 934 million bushels. 

As I commented previously, this market should be directionless into the report tomorrow at 11:00 but with fieldwork on the upswing, we will likely need positive news just to keep our head above water for the time being.  

Soybeans

Fundamentals – Nearby beans slipped down to test out the low end of their current trading range yesterday and have been able to bounce back just a bit from there and should remain in this range at least through the report tomorrow.  Maybe even more so than with corn, beans are going to require a steady stream of positive news to maintain these levels and that could become increasingly difficult to come by.  The average estimates for the domestic ending stocks stand at 139 million.

Export inspections were just a touch higher than the previous week coming in at 18.72 million bushels.  Year to date we now stand at 1.495 billion bushels vs. the current USDA estimate of 1.530 billion.  We will undoubtedly see this estimate bumped higher again on Wednesday but by how much remains to be seen as is the revised import figure. There is a boat of Brazilian beans that is currently being unloaded at the Gulf. 

There were a few states that reported bean planting progress but the numbers are pretty insignificant at this point.  Louisiana at 8% compared with a normal 6% and Mississippi at 4% vs. a normal 7%. 

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Morning Comments -Full - Waiting on Uncle Sam

Apr 07, 2014

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Wheat

Fundamentals – It seems that anymore we leap from awaiting one government report to the next and to begin this week, traders are looking out to the Wednesday Supply/Demand estimates.  The wheat market is higher this morning and would appear to be reflecting the lighter than hoped for rains that fell to the west of over the weekend and a shift back to cooler temperatures on the overnight weather updates.  That said, after two weeks of declining markets, we are probably entitled to at least a short corrective bounce. 

For the Wednesday report, the average trade estimate for ending stocks is 583 million bushels vs. the March estimate of 558.  The range of estimates are 553 to 625 million.

Estimates for todays export inspections sit between 15 and 20 million bushels.

Technical – After touching down to complete a 38.2% retracement at 6.58 ½ on Friday, May wheat bounced and this morning we have been able to rally enough to post a higher high for the first time in the past 7 sessions.  I would like to think that we have room for 3 to 5 days for rebound action with potential to bounce back into the 6.83 to 6.91 retracement range, for what should be a B wave correction.  Cycle dates line up for the 10th /11th and strength into then could present a selling opportunity.

 

Corn

Fundamentals – The reversal higher posted last Friday did not carry-through into this morning but the pressure is pretty insignificant at this point.  I have to believe the shift back to cooler temperatures on the overnight weather updates as well as predictions for additional moisture falling across the south should be supportive but we could be poised to just tread water between now and Wednesday.

As I have commented previously, it would not be surprising to see the USDA boost both exports and residual usage for corn by a combined 100 million taking the ending stock below 1.4 billion. For the report, the average estimates for corn ending stocks stand at 1.403 billion with a range of estimates between 1.306 to 1.478.  World corn ending stocks are estimated to be 157.72 MMT with a range of 156.5 and 159.2.  Last month this number stood at 158.47. For the South American production, Brazil is expected to come in at 69.66 MMT, down .35 MMT and Argentina at 23.95 MMT, down .05 MMT.  

After those figures are released the focus should almost be entirely about weather but as we have learned many a time, it is difficult to generate extended swings particularly to the upside related to spring weather.  We can just put the crop in the ground too fast. 

Export inspection for least week are expected to be in the 35 to 45 million bushel range.

Technical – May corn posted an outside higher reversal last Friday but found no follow-through strength overnight.  That said, short-term oscillators are oversold and we remain well entrenched in the overall uptrend and could very well continue to hold around this 5.00 level for several more days or even make another attempt to stab into higher highs.  That said, after 3 months of rally, we are in need of a corrective pull back.   After today, the next cycle date ahead sits on the 14th

Soybeans

Fundamentals – Bull spreads are at play again this morning in the beans trade, which would seem to be a very normal reaction with the situation we are confronted with for now.  China continues to work at selling back previous purchases now out through the summer months and South American cash markets continue to slide lower.  I understand there will be a Brazilian cargo that will come into the gulf this week for unload. 

The USDA will need to be shifting a few numbers around on Wednesday’s report and I suspect both exports and imports will be boosted.  The average trade estimate for the ending stocks is 139 million bushels, which would be 6 million below the March estimates.  The range of estimates runs from 125 to 147 million.  World ending stocks are expected to be down .50 MMT to 70.14 with a range of 68.5 to 71.9.  Finally, the average estimate for the Brazilian crop is 87.43, down just over a million from last month and Argentina at 54.15 up .15. 

Export inspection as estimated to run between 8 and 12 million bushels.

Technical – May beans have witnessed a little two-sided action this morning and for now, remain trapped into our new trading range between 14.60 and 15.00.  Short-term oscillators are at the oversold zone so I do not suspect that we are ready to flush to the downside yet and will look for choppy trade congestion trade at least through Wednesday and easily into the next cycle date on Friday.  As I have commented previously, we could be in-store for choppy somewhat sideways action between now and the 270-calendar day cycle count that sits out on the 5th of May. 

Soybean Oil – May bean oil has seen two-sided overnight trade as well but so far remains within Friday’s trading range.  Short-term oscillators are quite overbought and teetering on the edge of turning lower and it would appear that we have room for additional downward corrective action.  There should be solid support down around the 40.60/40.30 zone but a close below the lower end would open the door for a push down to 38.80.  The next cycle date ahead is on the 11th

Soybean Meal – Two-sided overnight action in meal but this market is looking a bit more supportive than oil.  The daily oscillator is oversold and it would appear that we could be set for another attempt to push through the upper side and potentially a run into the 490/493 zone.  Cycle dates ahead on the 10th/11th

Cotton – Good two-side action in cotton as well and while it would appear that the bears have the upper hand right now, we remain within the current trading range of 93.75 to 90.50.  My intermediate indicator continue to point lower and I do believe we will eventually push through the lower end but short-term we remain oversold and could stand to see a rebound first.  The next cycle date ahead falls on the 17th.

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Morning Comments - Full - Searching for News

Apr 04, 2014

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Wheat

Fundamentals – It would appear that the strength in the wheat market yesterday was little more than a dead cat bounce as prices have turned south again overnight.  We have not pressed into lower lows yet but sit right against the lows for the week.  Without a fresh positive story, I suspect this market has additional ground to surrender. 

The most recent NOAA 6 to 10 days forecasts point to temperatures beginning to warm up to normal to above normal level for a major swath of the Mid-west and while we could stand to see more moisture in wheat country, I suspect that when planters begin to roll, it will cast a negative tone across all markets. 

Dry weather or unrest once again in Ukraine could provide a spark for a rally but absent that, it would appear that we should be headed for a deeper correction to the downside.  

Technical – We may not see anything more than that one day bounce out of the wheat market as futures are back under pressure this morning.  Not only are we poised to post the first lower weekly close in a month but unless we rally and close above 6.87, we will also finish below last weeks low, which would pound another nail into the bull coffin.  The 38.2% retracement is actually quite close at 6.58 ½ but I would not expect anything but temporary support there and we should have room to at least reach down to the 50% retracement of 6.38 ½ and eventually 6.25.  Cycle dates ahead on the 10th and 21st.

Corn

Fundamentals – The corn market was unable to find any follow-through buying overnight and has returned to the negative column as well.  We have witness a very large speculative buildup in this market since the beginning of the year, which is rivaling 2012, and without an injection of positive news pretty quickly, it would appear we are poised to unwind a portion of that.

As pointed out in the wheat comments, the most recent 6 to 10 day as well as 11 to 15 day forecasts by NOAA look conducive to a pickup in planting progress, which psychologically at least, should hang over the market. 

Overall not much news to cover this morning as the trade awaits the USDA reports next week.  I continue to expect to see the corn export number bumped up at least 50 million and potentially another 50 million in the feed/residual category. 

Technical – May corn posted a narrow inside range yesterday with a higher close and this morning is flirting with pushing through the lower end of that range.  Not a positive scenario if successful.  Granted, we should still see support at the 13 and 21-day moving averages which currently cross between 4.91 and 4.89 but with the intermediate daily indicator turning lower again, I suspect that may not hold us again this time around.  I have several cycle dates lining up in the short term, with counts on the 8th, the 14th and then 18th/20th

Soybeans

Fundamentals – The bulls continue to defend their long positions in the bean market and while they could still point to a positive export sales number yesterday, they have less and less news which they can use to do so.  South American basis numbers for both beans and meal continue to deteriorate and stories of the Chinese trying to cancel/move purchases are a daily occurrence.  

The two critical numbers that the trade will focus on next week will be exports and imports.  It is possible that we will see nearly offsetting figures.  Keep in mind we have been talking about this story for some time now and once we have move past this next report, it could become pretty stale, particularly if the sales numbers are drifting.  If the weather does allow a good pickup in the planting pace, the focus could quickly shift away from the stories that have brought us to these levels. 

Technical – May beans tried to extend a bit higher overnight but we have struggled to maintain all of that in the daylight.  We appear to be developing a new trading range roughly between 14.60 and 15.00 and could continue to chop between these points between now and the next cycle date on the 11th.  A breakout to either side of this range may only amount to a 15 to 20 cent move in that direction but after a $2.50 advance over the past two months and a large long fund position, you have to think the risk would be greater for a washout to the downside.  Ideally, we will see prices turn somewhat directionless between now and the 270-calendar day cycle count that lines up for the 5th of May.  

Soybean Oil – The bulls is not ready to give up on the bean oil market at this point as prices have been able to extend higher again this morning.  That said, we remain below the highs posted on Wednesday as well as the 50% retracement at 42.45 and with short-term oscillator overbought, we could stand to see a little back and fill action.  The next cycle date ahead sits on the 11th

Soybean Meal – Since pushing through the February reaction high of 472.90 on Monday, May meal has not really been able to extend higher by much but neither has it closed or for that matter even pushed back below that point.  We may still try and poke into higher highs and possibly make a run for the 490/493 zone but I suspect time is running out.  Cycle dates ahead between the 8th and 10th and again on the 18th and we should have this overall advance complete during that period.

Cotton – After several days in a row of lower closes, May cotton has been able to snap back today but overall continue to trade in this new congestion range between 94 and 90.50.  Intermediate indicators continue to point lower but the short-term are oversold and trying to point back up.  I have cycle dates ahead on the 7th and then the 17th and will sit tight until something more concrete develops.   

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Morning Comments - Bulls are getting a touch nervous

Apr 03, 2014

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Wheat

Fundamentals – It would appear that markets reacted a bit to harshly to the downside yesterday as prices have bounced overnight but I suspect it is more akin to a dead cat than any kind of actual reversal.  Rains are moving across much of the Midwest and south which will of course keep producers out of the field near-term but is just what the doctor ordered for an emerging wheat crop. 

Export sales fell within estimate range of 2 to 400k MT coming in at 336,400 MT or 12.36 million bushels, which were down 16% from last week.  Indonesia, Egypt and Nigeria were the best buyers. 14/15 CY sales came in at 310.5 MMT or 11.4 million bushels. Year to date we have now sold 1.112 billion bushels, so need to sell an additional 63 million of the next 9 weeks to have reached the projection. 

I suspect any strength in wheat currently will be fleeting and after what has been a very solid 6-week rally, we are in line for additional downward correction. Eventually I believe July futures should have room to reach to the 6.30 level. 

Corn

Fundamentals – The USDA report provided us with two very solid up days but that could not extend into a third for the corn market. Even with the solid setback yesterday, corn did maintain key moving average support and have tried to rebound overnight.

The 7-day NOAA forecast indicates that east of the Mississippi we will be looking at reasonable amount of rainfall, particularly to the south, which will of course slow down field work but unless that really persists, it is tough to think of it as a positive market factor. By the time this moves through soil temperature should be warm enough at least in areas south of Minnesota to move the planters into high gear.  

Export sales were 32% below last week but still decent at 960,600 MT or 37.8 million bushels.  The best buyers for the week were Japan, South Korea and Egypt.  14/15 sales were pretty light at 1.5 million bushels.  Year to date, we have now sold 2 million more bushels than the current USDA estimate of 1.625 billion bushels and I suspect we should see that number bumped up by at least 50 million bushels on next weeks reports. 

Weekly ethanol production, which was released yesterday was supportive coming in at a daily average of 922,000 barrels, well above the 10 week average of 897,000. This should equate to around 97.5 million bushels.  If I were operating an ethanol plant and enjoying these margins, I would be trying to max out production as well. Weekly stocks grew for a second week in a row. 

 It would appear that the bull was only wounded yesterday and still has intentions of trying to charge once again but I suspect over the next 3 to 5 days he could be pretty well exhausted for now. 

Soybeans

Fundamentals – That was a pretty solid reversal in the beans market yesterday but we have seen a number of those types of days over the past 8 months and to date, none have had a lasting impact.  It is not that the world fundamentals are looking any more positive at this point, but we still lack solid confirmation that we have turned the supply/demand balance in this country and until that happens the bulls will try and defend their position. Export sales this morning appear to have helped their cause.

For the week ending March 27th, we sold 66,200 MT of beans or 2.4 million bushels.  Granted, that is not a huge number but realistically eats up the beans that the USDA found on the grain stocks report.  Interestingly enough, the biggest buyer for the week was China at 51.2k MT but there were also cancellations from unknown of 92.5k MT.  It will be very interesting to see what changes the USDA will make next week concerning both exports and imports. 

Even with the overnight strength, we remain well below the highs posted yesterday and I continue to believe this 15+ level will turn out to be very significant resistance. 
 

Morning Comments - Where is the fresh news going to come from?

Apr 02, 2014

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While a constant moving target, the job of the market is to distill the information we are fed on a regular basis and convert that into a potential value for commodities and seeing that we can never KNOW all the changing variables that are taking place, prices will overbalance to one extreme or the other as we try to find the right value.  There comes a point where fresh information is no longer flowing in and we have likely overbalanced price at that point. It would appear that we have reached that stage in the wheat and I am not too sure that corn and beans will not be too far behind. This is certainly not to say that there will not be additional news or risk factors that will need to be priced in, i.e. weather, down the road but for now, we have been discussing the same story for over two months and I suspect we need something fresh or will be in need of a little rebalancing in the other direction.   

Wheat

Fundamentals – The wheat market was under pressure all day yesterday and has extended further overnight.  Moisture in the south and west will continue to be a concern but there is still ample time to develop this crop and there are forecasts for moisture in the Southern Plains into the weekend.  Of course Ukraine will remain a concern but for now that is off the front page news.

Corn/wheat spreading was noted yesterday and if that was new positions or spread unwinding is yet to be determined but is indicative that speculative money is ready to step aside from long wheat. 

Corn

Fundamentals – Corn extended into new highs for the calendar year yesterday on additional fund buying, estimated to be around 13k contracts and corn/wheat spreading.  The job of this market right now is to factor in the reduced inventories that were reported on the stocks report and with the push above 5.00, I have to believe we are pretty close to achieving that job.

There is quite a bit of chatter about the huge margins for the ethanol manufacturers right now, which is undeniable but also keep in perspective, blenders are actually operating in the red.  To believe this will lead to a massive increase in the overall corn usage for ethanol this year is probably misguided.   Weekly production will be released later this morning. 

As I commented initially, markets are always in a state of adjustment as we introduce new data and for the past couple months now we have been adjusting corn higher to reflect the better than expected usage and re-supplying the U.S. pipeline.  Looking forward, we could see South America begin to take a larger and larger share of the world corn trade, which would leave weather as the only motivating factor and that is out into the future just yet.  There is a possibility that the reports issued this past week could be some of the friendliest of the year. 

Soybeans

Fundamentals – An estimated 8,000 contracts of fund buying pushed the beans higher again yesterday and we have extended a bit again overnight.  CIF values for beans continue to erode and domestic crush is making its seasonal slowdown, which would suggest we may be post the peak demand part of the year.  If correct, it is difficult to think we can extend this move much further North.  That said, we all recognize that we have an impossibly tight breakdown in the numbers at this point and need more concrete verification that indeed we have revered the outflow of beans.  I stand by the old adage that if we know about a problem far enough in advance, there will never end up being a real problem and beans would seem be a prime candidate to prove if this is correct or not.  I suspect that nearby futures are going to find increasingly stiff resistance between current values and 15.25, and for the bean market, that is not a large range. 

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Morning Comments - Full - The Bull Remains in control, at least for now

Apr 01, 2014

Wheat

Fundamentals – The numbers for the wheat market were basically neutral yesterday and had it not been for the renewed strength in the corn market, I suspect this commodity would have closed weaker.  As I had discussed previously, this rally was getting a little long in the tooth and was in need of resh positive news to sustain it. As we now know, that was not to be the case on the reports.  Granted, we still have the issues of dry conditions to the south and west as well as the unsettled situation in Ukraine but it would appear that wheat should be in line for a corrective swing lower over the next 30-days.

With all the hubbub surrounding the stocks and acreage reports yesterday, export inspections were basically ignored.  For the week ending 3/27/14, we shipped 18.1 million bushels of wheat, which is a little above the 10-week average of 16.8 million.  This brings our marketing year to date totals up to 952.15 million bushels.  To reach the USDA target of 1.175 billion we will need to average 24.8 million per week for the next 9 weeks of the marketing year. 

Technical – While the wheat market was able to bounce back well from the lows yesterday, with the pressure this morning, it would appear that the bull has lost its grip on this market. Intermediate indicators have crested and are pointing lower and we should be in line to see prices track lower at least for the next couple weeks.  A close this Friday below 6.87 in May futures should confirm our reaction high and open the door for a slide down to at least 6.40 and possibly 6.20.  Cycle dates ahead for this month line up for the 10th and the 21st

Corn

Fundamentals – Leading into the report yesterday morning, there was evidently a number of traders who were counting on negative numbers but as we know that was not to be the case and we witnessed quite a turn around from the early lows.  The corn market unquestionably received the most positive news yesterday as both stocks and acreage numbers were under trade expectations.  Of the two, I have to believe that the stocks figure was the more positive. Looking out to the April 9th supply/demand report, I suspect that you will see the government boost the feed/residual number 50 million and possibly the exports a comparable amount, which could take the ending stock figure down to the 1.35 billion bushel level.  This would still be an increase of 635 million bushels over the previous year but remember, just 3 months ago the bears were touting a potential carryout above 2 billion.  This does heighten the need to produce a solid crop this year. 

At the projected acreage of 91.7 million, that is certainly possible.  That figure is actually pretty close to the USDA outlook estimate of 92 million acres.  You have to suspect that the USDA will stay with the trend-line number of 165.3 on the next report, but if we factor in the potentially reduced carry-in and 300k less acres we could be looking at a total corn supply for next year of 15.32 billion.  On that previous report, the government was estimating total usage of 13.38 billion so if left unchanged, we could be looking at a projected carryout number of 1.94 billion bushels. 

Export inspections were very solid last week as we shipped 52.3 million bushels, which was above the upper estimates and the 10-week average of 35.8 million.  This brings the year to date shipments up to 882 million bushels moving us to the 54% mark for the current target of 1.625 billion bushels. 

Technical – May corn posted an outside higher reversal yesterday and has been able to extend into higher highs again this morning.  We have now reached to within 2 cents of completing a 38.2% retracement of the entire range down from the peak set in late June last year at 5.14 ½.  We should run into dense resistance from there right up to 5.30.   While weekly indicators continue to move higher, I need to point out that the monthly oscillators have pushed into an overbought position for the first time July/August of last year.  While that does not call for an immediate top, it is a key warning flag that we should be in the final stages of this advance.  The next cycle date ahead lines up for the 8th.  

Soybeans

Fundamentals – Big volatile session yesterday as the old crop bulls found a little bit of positive news while the new crop bears were rewarded with more acreage.  While I feel that the rally reaction in the front seemed a bit excessive, it is difficult to argue with a record quarterly usage of 1.2 billion bushels.  On the upcoming supply/demand report we should expect to see both exports and imports boosted and a possible carryout down to around 135 million.  The acreage number was not only a touch higher than the trade estimates but was 2 million acres higher than the February outlook summit and 5 million higher than a year ago.  Prices struggled initially and did close lower but pressure was really not significant and we are higher again this morning.  As we know, a couple bushel shift in yield will have a major impact on the overall crop size but if they come back with the yield of 43.3, we could be looking at a possible projected carryout in the 350 to 400 million bushel range. 

Export inspections were actually below the low end of the trade expectation at 18.6 million bushels but we have now moved to a cumulative 1.475 billion bushels for the market year.  This leaves us only 55 million behind the current target of 1.53 billion bushels.  Look for this number to be bumped up by at least 25 million bushels on the April report. 

Technical – With yesterday’s rally and the follow-through this morning, nearby beans have now reached the highest point traded since September last year and just completed a 61.8% retracement at 14.86 ¾.  Weekly indicators are nearing the overbought zone but continue to point higher and it is possible that we could be headed for the major 50% retracement of 15.25.  There also happens to be gap on the weekly chart between 15.26 and 15.34.  Cycle dates line up ahead on the 11th, the 23rd and then finally the 5th of May.  It is hard to imagine that we will track higher consistently between now and that final date but that will mark the completion of the 3rd cycle of 90-calendar days from the August low and that is normally an important count.   

Soybean Oil – Bean oil continued to struggle yesterday in face of the strength in the other bean markets but prices have rebounded nicely this morning.  The intermediate daily indicator is just beginning to turn high and it would appear that we should have posted a reaction low yesterday.  A close above 41.31 on Friday in May futures would confirm a reversal. 

Soybean Meal – As with the beans, meal posted an outside higher reversal yesterday and have extended higher once again this morning reaching to within a dollar of the February 27th spike high at 486.50.  The intermediate daily indicator is nearing the overbought zone but shows no sign of faltering just yet so the bulls remain in control.  If we push through that previous high, it would open the door for a run at the 490/493 level.  The next cycle date ahead sits on the 11th.

Cotton – Cotton found nothing that would help the bulls yesterday but there has really been no significant downside pressure either.  May futures have now been in a congestion pattern for the past 4-weeks ranging roughly between 93.75 and 90.50.  Intermediate indicators are pointed lower and a closing violation of the lower end of the range would open the door for a swing back down to at least 87.25.  Cycle dates ahead on the 7th and the 17th

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