Oct 1, 2014
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June 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 - Only Surprises count today

Jun 30, 2014



We are issuing a somewhat abbreviated morning comments, as the quarterly reports today are nearly the entire focus of the trade.  Keep in perspective though that unless there is some type of "shocker" in the figures, markets will often turn back to the news at hand and right now that is predominately bearish.  

Moisture tends to lean to the excessive side but other than disrupting wheat harvest, it is difficult to excite buyers with too much rain.  We could see a little more deterioration in the crop rating for corn but overall the crop will be in great condition.  That said I would expect little change in any of the crops.  The latest weather forecasts that I have received predict that after the current batch of storms pass through early this week the weather turns generally drier and possibly a bit cool.  With pollination rapidly advancing northward, it would be difficult to ask for a better picture.  The next topic ahead could be lack of growing degree days. 

While it does not seem to be headline news, the Congressional Budget Office released a report suggesting that repealing the Renewable Fuel Standards could actually lower the price of fuel.  As you might suspect the Renewable Fuels Association was quick to counter the report but I suspect this has added to the negative psychology this morning in corn.  Note that members of both parties are lined up on both sides of this debate and bio-fuels most certainly does not have the clout they once did in Washington. Adding to the negative corn action this morning was the Hog and Pigs report that indicated fewer hogs that expected.

According to the Commitments of Traders report, managed funds are at the lightest long position in corn and beans since February and increased shorts in wheat once again.

The estimates for 11:00 are as follows;

June 1st Grain Stocks (Billion Bushels)

                                    Avg Est.                    Range of Est.          The Hueber Report

Corn                            3.724                         3.046-4.05                      3.775

Beans                           .387                            .334-.450                       .410

Wheat                       .603                             .561-.715                       .715

Acreage (Million Acres)

Corn                           91.787                          91-92.3                          92.2

Beans                         82.173                          80.5-83.2                      82.95

Wheat                          55.707                          54.8-56                         55.2

Weekend Commentary

Jun 27, 2014



It should come as no shock to anyone who eats or drives a car, but inflation in the US kicked up to the highest levels in more than a year and half this past month.  What is referred to as the Headline Consumer Price Index was up 2.1% from a year ago, but the preferred measurement of the Federal Reserve, the Personal Consumption Expenditures were up 1.8% over a year ago.   Of course the minute that we see inflation numbers kick up at all, the hard money group is ready to jump all over the figures as finally proof positive that the incredible amount of money that has been pumped into the system by the federal government over the past seven years have finally caught up to us, and once hyper inflation kicks we will all be carting in wheelbarrows of worthless greenbacks to buy our next loaf of bread a la the Weimar Republic in the 1920s.  Buy gold now before it is too late, but of course only from our recommended advertisers suppliers.  While I am not a member of the panic camp, the increase in energy and food is certainly impacting consumers’ habits, and one has to believe will create a drag on the overall fledgling economy.  According to the Bureau of Labor Statistics, energy prices were 5.8% above those from a year ago, and food prices were up 2.1%.  Are we really that overjoyed that personal computers and peripherals were down 6.5% and footwear 1% to help temper our out of pocket costs? 

I have spoken with many an individual that have relayed stories about turning away from their favorite cut of meat at the grocery counter or shifting travel plans because of the unexpected bump in fuel prices.  Realistically the year over year changes really only tell part of the story.  If viewed as a continuously compounded annual rate of change, all food and beverage is up 5.476%, and CPI less food and energy is still up 3.146%. 

Granted, the largest influences here are considered cyclical.  The Hog and Pigs report issued this afternoon does not provide hope for any immediate relief in pork prices nor does the ongoing drought in California; but overall we should see relief ahead in food and energy prices moving ahead as world food production rebounds.

Regardless, it would appear the overall economy still faces considerable headwind, and the negative 2.9% GDP that was recorded in the first quarter does not paint a pretty picture. The spin doctors for the White House would like us to believe it was a temporary aberration created by the bad winter not because consumers are being pinched by food, energy and just as important, health care costs due to the ironically named Affordable Care Act.  They are already calling for a turn around in the second quarter and very well may be correct but considering two negative quarters in a row qualifies as a recession, they better hope they are.  If not, it could be a very interesting mid-term election in the fall not to mention what an unpleasant reality check that should be for the bulls of the equity world.

Morning Comments - Could there be surprises in acreage?

Jun 27, 2014



Wheat was able to hang on for higher close for a second day yesterday but we have surrendered part of that now in the overnight hours.  Realistically there is very little news to cover this morning as most of the action and focus well be on squaring up positions in front of the reports on Monday.  There is of course always the potential for an element of surprise when the government revises numbers but regardless, almost any report will be quickly factored into prices and the focus will shift to other news at hand and right now, most of that will lean to the negative side.  This is not to say that a short covering rally will not be in order but odds of an extended advance appear slim for now. 

The average estimates according to the WSJ have June 1st wheat stocks at 603 million with a range of 561 to 715.  Planted acreage for all wheat is expected to be 55.707 million acres with a range of 54.8 to 56 million. The Hueber Report is looking for stocks of 715 million and an acreage number of 55.2 million.


The corn market continues to wallow around in a congestion range as we await the reports this coming Monday.  We know there remains an area in the Iowa/Nebraska/Minnesota region that would think otherwise but the overall weather has been close to ideal for corn development and the outlook looks quite good right through the first week of July.  Realistically this will carry us into the beginning of pollination for a large swath of the Midwest and with more than ample soil moisture, it would require something quite extreme to rob us of great yields.  Once we have digested whatever information comes from the report, attention will turn completely to weather.  It is interesting to note that there was quite a bit of discussion yesterday about corn acreage after both Monsanto and Bayer reported lower seed corn sales as well as higher bean sales.  Could this be the stimulus to start a short covering bounce?

The average estimate according to the WSJ for Monday are; June 1st corn stocks at 3.724 billion bushels with a range of 3.046 to 4.05.  The average acre estimate stands at 91.787 million with a range of 91 to 92.3.  The official Hueber Report estimates are 3.775 billion of the stocks number and 92.2 for acreage. 

We cannot overlook the Hog and Pigs report that will be issued later today. The average trade estimate has All Hogs and Pigs at 97.1%, Kept for Breeding at 101.8% and Kept for Marketing at 96.8%.


Beans pushed up to the highest close posted since the 11th of June prompted by the positive export sales report.  While technically this is a positive move and could have opened the door for a little more strength, prices have pulled back a bit this morning as traders even the books in front of Monday.

It seems that we have been talking about this report forever and as such, unless there is some kind of shocker, it could turn out to be anticlimactic.  Note the comments under corn about the reports from Monsanto and Bayer about bean seed sales.  If this relates to another 1 to 2 million acres on top of the already record projected acreage number you would have to question how much longer the November futures can hold above this 12.00 mark without a weather issue. 

Looking out to Monday, according to the WSJ the report estimates are as follows; June 1st stocks 387 million bushels with a range of 334 to 450 million.  The Hueber Report estimate is 410 million.  For acreage the average estimate is 82.173 million with a range of 80.5 to 83.2 million.  Our estimate is 82.95 million.

Morning Comments - Waiting Game

Jun 26, 2014




After posting a lower low for the swing yesterday the wheat market was able to rebound for the close and is trading firmer once again this morning.  I suspect that prices should turn basically sideways now as we await the quarterly reports on Monday. 

There is a little growing concern about what has been a lighter than normal start to the monsoon season in India but forecasts do point to a pickup in moisture as we move into July.  Of course domestically we are dealing with the opposite scenario as the spigot does not want to shut off enough to allow harvest to really kick into gear.  While the overall world fundamental picture remains negative, which should limit rallies, the delay here could potentially be the stimulus to spark as short covering rally by the managed funds.

Export sales for wheat came in at 359,000 MT or 13.19 million bushels right about in the middle of estimates.  This number was 4% down from last week.  Marketing year to date we have sold 267 million bushels, which is just over 22% of the USDA target for the year. 

Stats Canada will issue updates for production and inventories tomorrow but most the attention will be focused yet on the Monday reports.  The average estimates according to the WSJ has June 1st wheat stocks at 603 million with a range of 561 to 715.  Planted acreage for all wheat is expected to be 55.707 million acres with a range of 54.8 to 56 million. The Hueber Report is looking for stocks of 715 million and an acreage number of 55.2 million.


The corn market has moved into report mode as we are just treading water at this point and will most likely continue to do so into Monday. 

The EIA ethanol numbers were pretty much as expected reporting production of 275.77 million gallons for the week, which equates to around 99 million bushels of corn.  Weekly stocks bumped up 14 million gallons and stand at 763.69 million gallons. 

The was an interesting story from China overnight and while it does not produce any immediate market impact, it does mark a major shift in Chinese Ag policy.  What has been a decades old policy of fixed subsidies to encourage domestic production is going to be gradually replaced by target prices that are set more in line with world values with government support if prices fall below those levels.  This should be more of a market-based approach than the current system.  They also announced plans to boost grain storage capacity throughout the country.  The new program will be introduced initially with soybeans and cotton and will expand to other commodities after. 

Export sales bounced back well from the disappointing number posted last week coming in at 321,400 MT or 12.65 million bushels.  This was still 22% below the 4-week average. 

We cannot overlook the Hog and Pigs report that will be issued on Friday, which could set the tone for the Monday reports as well.  The average trade estimate has All Hogs and Pigs at 97.1%, Kept for Breeding at 101.8% and Kept for Marketing at 96.8%.

The average estimate according to the WSJ for Monday are; June 1st corn stocks at 3.724 billion bushels with a range of 3.046 to 4.05.  The average acre estimate stands at 91.787 million with a range of 91 to 92.3.  The official Hueber Report estimates are 3.775 billion of the stocks number and 92.2 for acreage. 

Once we have moved post report, the complete focus should be on weather and while we know there are a few spots of concern with the excess moisture, the bull does not seem to have much of a case.  That does not preclude the potential for a short-covering bounce but they could be disappointing in size. 


Each week we continue to see a few more beans sold, which should make the report next week all the more interesting.  The range of estimate for exports sales was from a negative 100k MT to a positive 150k MT and we actually came through at 317,200 MT or 11.66 million bushels.  In buying were Unknown destinations for 197.6k MT, Mexico for 56.1K MT and Thailand for 38k MT to round out the top three.   We now stand at 1.671 billion bushels or 71 million above the USDA target.  This was enough to give the market a boost this morning but nothing out of the ordinary or out of recent ranges and the cash market still does not appear to be in any kind of panic. 

Looking out to Monday, according to the WSJ the report estimates are as follows; June 1st stocks 387 million bushels with a range of 334 to 450 million.  The Hueber Report estimate is 410 million.  For acreage the average estimate is 82.173 million with a range of 80.5 to 83.2 million.  Our estimate is 82.95 million. 

For now the bean bull is alive and kicking but I suspect is going to need a fresh batch of feed come Monday to maintain the energy.  Action between now and then will mostly be market noise.

Morning Comments - Marking Time until Monday

Jun 25, 2014




Depressed world markets and the beginning of harvest now in Europe and Russia to accompany the expanding US harvest keeps the wheat market under pressure as we have sunk into new lows for the move once again.  For good measure, it is also believed that the Chinese are also looking at a very solid crop this year.  It would appear that the bear holds all the cards but of course we know when everyone believes that, watch out for surprises.

While we still have exports sales tomorrow morning, it would appears that there is really not much to look at between now and the reports next Monday.  Currently the average trade estimate for June 1st stocks is 598 million bushels with a range of 560 to 630.  The average estimate for all wheat acreage stands at 55.82 million.

With the dip into lower lows yesterday nearby futures are sitting right on top of my downside targets between 5.67 and 5.62.  There is certainly nothing that says we have to stop once we reach that zone but I would expect to see prices begin to stabilize at this point. The bear has been controlling this market now for the past two months and it would appear that we have reached the point that the blinders are on and everyone is thinking the same way.  As we know, that could very well mean that no one is thinking anymore and opens the door for a potential for a surprise. 


The corn market was able to bounce from the extreme lows yesterday but still finished soft.  We are back under a little pressure overnight but remain in the same range that we have for the past week and half now and I suspect will continue to do the same between now and the reports on Monday. 

The average trade estimate for the June 1st stocks figure stands at 3.75 billion bushels with a range of 3.6 to 3.9 billion.  The average estimate for planted acreage is unchanged at 91.7 million with a range of estimates between 91 and 92.2 million. 

The weekly ethanol report will be issued later this morning and should show production in 275/280 million gallon range. DDG’s continue to erode and margins have been squeezed which could begin to slow the pace of what has been the stalwart of demand this year. 

While we know that there are water issues out in Northwestern Iowa/Nebraska/Minnesota, overall conditions remain ideal and the weather outlook appears very favorable as well.  I guess I am not really telling you anything new in that respect and for now the bear would seem to be in the drivers seat.  I expect to see sideways action into Monday.


The bean market has realistically been in a sideways pattern for the past couple weeks now and should remain that way through Monday.  There is certainly much riding on these reports and with the expectation that additional old inventories will be found, the burden of proof would seem to rest with the bear.

The average trade estimate for June 1st stocks is 378 million bushels with a fairly wide range of 334 to 440.  Anyway you slice it, we will have a tight inventory.  The average acreage estimate stands at 82.15 million with a range of 80.5 to 84 million.  The March estimate was 81.5 million.   

Baring a shocker in the sales tomorrow morning, I suspect the bean market will be chopping sideways now through the weekend along with corn and wheat.  As I commented initially, there is much riding on these reports next week and they should set the tone for direction for at least the next 30 days. 


Morning Comments - Marking Time into Reports

Jun 24, 2014




The early morning optimism in the grain markets turned out to be quite fleeting and prices turned lower into the close.  We did not press into lower lows for the move at that time but now during the overnight hours the bear has been successful in doing just that.

As reported yesterday, recent Egyptian business went to Romania and Russia and Saudi business yesterday was all optional origin and most likely will be sourced from Europe.  Export inspections were actually a little better than expected and came through at 21.4 million bushels.  This was the highest weekly total in a month.  This is slightly above the 18.3 million pace we need but needless to say, this is very early in the year and we remain less than competitive on the world stage.

There were no surprises in the weekly conditions reports as the good/excellent rating for spring wheat dropped 1% to 71%.  It is estimated that 10% of the spring wheat is heading compared to an average for this date of 16%.  Winter wheat harvest has reached the 33% completed stage, just 2% ahead of the average with sub standard yields continuing to be reported.

The failure yesterday appears to have us positioned for continued weakness through the end of the month. I continue to look for spot futures to reach down to the gap targets between 5.67 and 5.62.  While there is certainly nothing that says prices have to quit going lower, particularly with the competitive world trade right now but we have been pressing prices on that news for a number of weeks now and I continue to believe we should soon be in line for a corrective bounce. 


It turned out that 3 days in a row of higher closes was enough for the corn market and the early concerns of too much rain was virtually forgotten.  We actually posted an outside lower reversal and have continued south in the overnight hours. 

Export inspections slipped a bit this past week coming through at 38.9 million bushels.  This brings the year to date tally up to 1.455 billion bushels and means we will need to average 44.5 million per week to reach the USDA target of 1.9 billion.  World availability of corn should not be a problem right now as the Argentine farmer has continued to drag their feet and are still barely 45% harvested and Brazil is into the 2nd harvest, reaching 5% complete. 

As anticipated, crop conditions did slip but certainly held no surprises that would help the bull cause.  The good/excellent rating slipped 2% but still stands at 74%.  The overall forecast into early July continues to appear near ideal for corn as temperatures are expected to bump briefly above normal accompanied by frequent showers.  Corn is already pollinating across the south with great conditions and with this outlook it would appear to hold the same promise as it moves north.  Of course there will be no "official" yield estimates with the reports next week but I am confident many will be speculating that the USDA will be pushing the number above the trend line of 165.3 for the July reports. 

The reversal yesterday looks dramatic but I do not believe it opened the door for any significant push lower at this time.  We remain at key levels of support and I would expect to see prices track sideways now through Monday and without any shocking negative news, we should be in line for a corrective bump. 


Bean have existed in a completely different world than the grains all year and that was demonstrated again yesterday as this market was able to sustain strength while the grains collapsed.  Meal was the exception to this as it turned lower into the close pressured by the DDG market. 

Export inspections were the lowest of the year at 2.3 million bushels.  Year to date shipments now stand at 1.562 billion bushels and to reach the 1.6 billion target, we will need to average 3.8 million per week. The average for the past 5 weeks was 4.8 million but that is 1 million less than the 10 week average so the numbers are drifting lower. 

As with the other crops there were no surprises in the weekly crop updates.  Nationwide planting stands at 95% compete and the good/excellent rating dropped 1% and now stands at 72%. 

Needless to say at this point, there is much banking on the reports next week for both the bulls and the bears and someone has to come out the loser.  The action in the cash markets appears to have told us there is a greater availability of beans than previously projected but there is no assurance that will be confirmed or rejected by the government.  It is a waiting game between now and then.

Morning Comments - Rain (does not) Make Grain

Jun 23, 2014




We have begun this new week with a little more positive tone with grain and soy markets all in the plus column.  News this morning is really quite sparse so I suspect most of the strength stems from a little growing concern about too much moisture and the fact that we have pushed markets into a very oversold position in front of the key quarterly reports on the 30th

The United States remains uncompetitive in the world wheat trade.  Over the weekend Egypt purchased 180k MT from Romania (120k) and Russian (60k) with prices $20/ton below US values.  I would expect to see the ratings for spring wheat deteriorate a bit this week from the excessive moisture across the upper Mid-west and plains states. 

The strength so far this morning in wheat is encouraging but so for basically inconsequential.  Nearby futures would need to poke up through last weeks high at 5.98 to begin making the bears squirm.  That said, we remain quite oversold and would appear to be close to posting a seasonal low and room for at least a corrective bounce. 


The corn market has extended gains to the fourth day in a row and has reached back to the highest level traded since the 6th of June.  The high for the month is actually all the way up at 4.70 ½.  Turns out funds were back buying again this last week helping to lift prices off of what were 5 month lows.

Excessive moisture appears to be the stimulus again this morning as a number of violent storms passed through the Midwest over the weekend.  I understand that in some areas around Omaha over 7 inches fell on an already saturated area and recent cumulative totals of 5 to 10 inches up in the Iowa/SD/Nebraska area have not been uncommon.  With those kinds of accumulations, the water cannot get away fast enough so it is not a question of will there be damage rather just how much.  The forecasts moving ahead do begin to dry out and warm up, which of course is good news as long as we do not flip to the other extreme.  That seems to be in no ones outlook at this point. Look for conditions to drop 1 to 2% overall this afternoon. 

The corn market was poised for a technical rebound and it would appear that we have turned the corner.  This question would seem to be will we continue higher right into the June 30th reports or pull back and make a second run after the reports?  While we will have to wait for the market to provide the ultimate answer, it would appear the nearby corn should have room to push back into the 4.69 to 4.79 zone and December corn into the 4.66 to 4.80 level on a corrective swing. 


Beans have joined the grain markets with the bounce this morning with July futures quickly reaching back to last week’s high at 14.35 ½.  While the excessively wet conditions are helping to support new crop prices, the ongoing story of critically tight inventories support the old. 

There is really very little additional news in the bean trade this morning.  Planting progress should have advanced beyond the 95% mark nationwide and condition this afternoon could show us a little deterioration as well.   As I commented last week, the big number that everyone will be looking at next Monday will be the June 1st bean stocks.  Will the USDA find more inventories?  The performance of the cash market would tell us that should be the case but we shall have to remain patient to find out if correct and if there will be a comfortable enough supply to reach into new crop availability.

Weekend Commentary

Jun 20, 2014


I came across an interesting hypothesis this week.  There are some who believe that the highly experienced and effective Russian intelligence (spy) organizations are being utilized to undermine certain activities in Europe and other nations around the globe.  I recognize that statement does not come as a major revelation, but the activities do not have any ideological underpinnings such as the spread of communism, nor are they an effort to control former soviet territories.  No, the accusation is that the intelligence machine is being used to undermine the expanding fracking industry in an effort to support Russian oil.  Now, I recognize this might sound like a conspiracy theory that the John Birch Society would be conjuring up. But no, this information comes from Anders Fogh Rasmussen, the secretary-general of NATO.  I quote, "I have met allies who can report that Russia, as a part of their sophisticated information and disinformation operations, engaged with so-called non-governmental organizations - environmental organizations working against shale gas – to maintain European dependence on imported Russian gas." So basically the KGB or whatever it is referred to today is working through environmental groups to undermine, no pun intended, fracking.  Mr. Rasmussen is from Denmark, a country better known for cookies, hams and Legos than conspiracy theories, so I doubt this was an unfounded accusation.  About 1/3 of the oil used in EU nations comes from Russia, so it would seem to be in Russia’s best interest to discourage plans for the EU to become more energy independent.

This seems to be a timely topic with all the turmoil that is happening in Iraq once again, the discussion of sending advisors/equipment/troops to support those we deem friendly, and the escalation in oil prices.  Iraq produces around 3.3 million barrels of crude per day, which is around 4% of the world’s total[1], and it is expected that 60% of OPEC’s expect growth between now and 2019 will come from that country.  For the United States, less than .5 of 1% of our imported oil comes from Iraq, but of course any disruption in the Middle East or Persia sends shock waves throughout the world markets and impacts everyone.  As such the drive for less dependence on imported energy, be that in Europe or the United States, the expansion of the fracking industry has been huge so the accusation of Russia using covert means to discourage or delay these operations seems quite possible.

I recognize that the fracking industry has many detractors from an environmental standpoint, some of which have been legitimate, particularly in the early days. But I also recognize that, like any industry that is harvesting natural resources from the earth, once problems have been identified, improvements can often be made.  This is the function of environmental and other watchdog groups, to identify those problems. As we know, there are those in business with a short-sighted greed that, left unchecked, would have no compunction destroying just about any forest or polluting oceans, lakes, rivers and the air as long as it is not in their own backyards.  That said, in my estimation, the core elements that make any and all wealth creation possible is from our ability to draw natural resources from the earth; without food, energy, clothing and shelter, little else would be accomplished.  Destroy this and you have destroyed the future. So the real question becomes, where do you find the proper balance? 

The United States has been importing crude oil since the early part of the 20th century, but the real growth in imports began after 1970 and then really accelerated in the 1980’s forward.  This corresponds with many of the issues surrounding inflation and then escalating national debt as well as trillions of dollars spent and multitudes of live lost protecting regions of the world where oil is produced.  Crude oil imports into the United States peaked in 2005 at over 10 million barrels per day. As of last year, that number dropped down to 7.72 million per day, the lowest level since 1994.  Granted, there have been a number of contributing factors leading to the decline including conservation and alternative fuels, but much of the shift has been due to the increased production of oil and natural gas that have been afforded by technologies such as fracturing.  There are many who now predict that the United States will be energy self-sufficient by the year 2035.  Is it any wonder that a country like Russia, who is almost completely dependent on generating wealth through traditional oil extraction, would be interested in seeing fracking obstructed? 

By no means am I an advocate of expanding energy production at any cost. There can never be an excuse for the disasters like the Deepwater Horizon debacle or the pollution of groundwater or soils, but it is unrealistic to believe that capitalizing on new technologies to expand energy production is a bad thing.  I equate this with the crowd that believes that all agriculture needs to shift to non-GMO organic food production. While that may sound like nirvana for the "green" crowd, they should also be tasked with responsibility of deciding which group of people will need to starve because of the lower production, or as Norman Borlaug would have argued, which forest or jungle would need to be wiped out to increase the tillable acreage.  It is an opinion that can only be afforded by individuals that live in areas of excess and send our meals back when the chef has offended us by cooking it wrong. 

While it would seem like I have ventured a long way from the story of Russia Intelligence agencies co-opting environmental groups to discourage fracking in Europe, the subjects are all the really interrelated.  Often times it will be missed if you do not scratch a bit under the surface, but just about everyone has an agenda and at times that agenda can be downright underhanded. Motivations aside, be it energy or food, as the population of this world expands toward the projected 9 billion sometime around 2050, we are going to need to find new and creative ways to produce both necessary products. Those who believe it can be stopped are either naïve, or worse, have an ulterior motive. And there are many with ulterior motives.  I believe the goal has to be to embrace the new technologies and work to make them as safe as possible, all the more difficult in face of "disinformation operations".  

[1] International Energy Agency

Morning Comments - Rain is the only story right now

Jun 20, 2014



Grain markets finally caught a little response to the excessively wet conditions that we have seen across much of the crop region of this country and bounced higher yesterday.  If July wheat can hold above 5.86 for the close today, it will be the first higher weekly close in the past six weeks. 

After the weekend, it is forecast that much of the moisture turns south and east which should allow the pace of harvest to pick up.  Oklahoma should be pushing the 75 to 80% complete mark by the beginning of next week and Kansas potentially reaching the 25% mark.  Yields continue to be disappointing but quality so far has not been a major issue.  Of course, if the wet weather were to continue, that story could change as well.

Outside of that, there is little encouraging to talk about for wheat.  The majority of the export interest continues to be satisfied via the Black Sea and with generally good production weather across much of the Northern Hemisphere it is difficult for traders to be overly excited about too much rain in the U.S.  That said, if the pattern does not shift next week, I suspect that shorts will become increasingly uncomfortable, which could provide is with a corrective rally.  Outside of that, most of the chatter next week will likely be directed towards the June 30th reports. 


Nice pop higher in corn as well yesterday as the Midwest becomes more and more saturated but the strength did not carry far into the overnight session.  We are ponding in this part of the country for the first time this year and seeing that we have not had nearly the quantity of moisture as many areas, I have to imagine there are a number of low areas being damaged.  Of course, that can mean the hill-tops will perform much better this year.  If July corn can close above 4.47 today it will be the first higher weekly close in six weeks but as I prepare these comments we are trading at 4.47 ½ so we hang in the balance. 

The Buenos Aries Grain Exchange now estimates that the corn harvest has advanced to 44% complete, which has been an agonizingly slow process.  A year ago at this time they stood at 72%.  Part of this has been due to wetter than normal conditions but also and maybe just as important, farmers would rather hold the commodity than the peso, which is constantly at risk of devaluation.

Looking out to next week, I suspect that the abundance of moisture will have translated into slightly lower crop rating but by no means anything alarming.  Through the first week of July, temperatures are expected to remain generally moderate and while I still see a few forecaster trying to hype up a high pressure ridge after that period, I have not seen anyone calling for lengthy periods of extreme heat.  Realistically, much of this crop is going to need heat pretty soon or we will be talking about maturity issues for the fall.

Most of the conversation next week should center on the June 30th reports.  While possibly not quite as critical as beans, the grain stocks figure should be interesting as it will possibly reveal not only the extent of the ongoing issues with the PED virus in hogs but also if the current estimate of 5.3 billion bushels of feed/residual usage is overly optimistic. 

By no means does day to day market activity have to make sense but it would seem reasonable to look for sideways congestion trade between now and the 30th.  A sharp move in either direction between now and then could possibly setup a trap.   


Bean were led higher by the new crop contracts yesterday in response to the wet conditions but have been unable to sustain that strength into today’s session.  Nearby contracts have surrendered all the strength while the November about a third.  I guess you could maintain that this moisture is creating potential issues with the growing crop but if we believe beans are made in August, it would be difficult to prop them up on moist condition in June for long.  I suspect that next week it will be reported that planting has pushed beyond 95% and ratings should remain very solid. 

The latest updates that I have seen from Argentina confirm a very slow harvest pace in that country but reaching around 92% for beans.  Farmers in that country probably feel more secure holding onto their commodities than the peso. 

Certainly weather will continue to be an important topic next week, as with corn and wheat much of the attention will have shifted to the June 30th reports and particularly concerning the size of last years crop.  I have read some estimates that feel the government will boost the number by as much as 65 million bushels, which at this point would basically wash with the amount of export sales already above the current estimates.  We will see additional guesstimates next week but I suspect most will be calling for higher acreage numbers as well.  


Morning Comments - Finally a little stability

Jun 19, 2014



Rain rain go away, come again another day.  Preferably just after wheat harvest and just in front of corn pollination.  It would be great if we could make such an order but we know that is not how it works and there would be too great a temptation to ask for less than ideal crops for others, and they might be doing the same.  The onset of warmer temperatures have brought along additional violent storms across the upper Midwest providing more than ample moisture and disrupting travel for many. I was trying to return from Tennessee yesterday afternoon and what should have been a simple one hour flight turned into a fourteen hour journey, with additional unplanned stops in Dallas and Omaha.  The 6 to 10 day outlook is offering cooler temperatures through the heart of the country and pushes much of the moisture south if I-70 and into the Delta.  The 8 to 14 forecast keeps moisture to the south and east, which would move us to the 2nd of July. 

Ukraine issued updates for the marketing year exports and report that beginning on July 1st last year through the 18th of June they have moved a total of 31.817 MMT of grains.  Of this total 9.29 MMT has been wheat and 19.92 MMT corn. Comparatively, for the entire 2012/13 marketing year they moved 23 MMT of grain.  Granted, they also produced a short crop that year but it does highlight the increased competition coming from the Black Sea region this year.  

Export sales were towards the lower side of expectations at 13.7 million bushels but right at the average pace we will need to reach the 14/15 target of 925 million bushels.  Needless to say, there is not much to make of the number being only two weeks into the marketing year.

Wheat harvest continues to push further into Kansas but reported yields remain disappointing.  While this should come as no surprise, it was one of the reasons given for the rebound in prices yesterday.  While I suspect that was a factor, with funds now sitting short, daily indicators is a very oversold position and seasonal lows due, I believe we may just be running out of sellers.  If that is the case, a short-covering bounce should be in order as we move into July. 


As I commented above, we appear to have had more than sufficient moisture throughout much of the upper-Midwest and while for some, there has been too much of a good thing and has created nuisances for travelers, it really leaves the vast majority of corn in excellent condition.  The current NOAA forecast take us up to the 2nd of July and if the slightly cooler and moist predictions are correct, the corn crop will have experienced little to no stress right up to pollination, which should be a recipe for exceptional yields.  There have been some talking about pushing the national yield to as high as 180 but at 92 million acres, even with ideal weather I suspect that is a stretch.  That said, pushing 170 would not seem out of the question.

I have had the opportunity to speak with several people in the industry recently about the upcoming acreage report and I heard numbers between 92 and 94 million acres bantered around.  Yes, we most likely lost corn ground in the Minnesota, Michigan and the Dakotas but the consensus seems to be that will have been more than compensated for in the middle of the belt.  Keep in consideration as well, if correct, that should also bode well for above average yields nationwide.  The March estimate called for 91.7 million.

The weekly EIA ethanol numbers were a positive surprise yesterday as we set a new weekly record of 972,000 barrels a day.  The previous high water mark was set in December 2011 at 963,000 barrels a day.  This equates to around 102.8 million bushels of corn, which of course is substantially above the year to date average of 95.55 million per week.  Simple economics at work.  The industry is enjoying solid margins and corn is available so you grind every bushel you can.  Weekly ethanol stocks were actually lowered by 24 million gallons. 

I have commented previously this week that for now end users are in the drivers seat and can allow prices to come to them, which appears to be reflected in the export sales figures.  For the week ending June 12th, we sold only 109k MT or 4.3 million bushels.  The trade had been expecting something between 12 and 20 million bushels.  Year to date we have now sold 1.837 billion bushels and need to average 5.7 million per week for the next 11 weeks of the year to reach that target.  As a reference point, last year at this time, we had sold just 693 million bushels. 

I would like to think that the action in the corn market over the past week is indicative of the development of a reaction low but we still need to see at least another one to two weeks of sideways congestion trade to build up much confidence.  I suspect we should be in store for such at least into the June 30th reports. 


As I commented yesterday morning, the nearby bean market had pressed down to good initial retracement levels, not to mention the psychological 14.00 mark with indicators quite oversold and was ripe for setting up a corrective low.  While I cannot say that we have actually confirmed such as of yet, a sale of 140k MT of old beans yesterday helped lift prices higher.  I understand this sale is for late August and possibly early September delivery so may actually occur in the new crop but it still came as a bit of surprise.  As I commented also yesterday, we cannot afford to stimulate new demand for old crop beans, which is why I did not believe we were in for a rout to the downside just yet.  While the break of $1.43 we have just experienced over the past 18 sessions may seem like quite a lot, it is not quite 10%.  Through this week spot corn has broken 16% and spot wheat 21.5%. 

Export sales were in line with last week and at the upper end of estimates at 97,900 MT or 3.6 million bushels.  The key element here is the number remains positive and we now stand at 59 million bushels above the target of 1.6 billion.  Sales for the 14/15 marketing year were 10.5 million bushels. For every new bushel we sell, the more critical the grain stocks number on the 30th becomes. 

That said, this still does not explain the stability in the November futures.  Granted, if we roll forward existing sales there should be very solid demand for new inventory but with the potential for another 500k or more planted acres and what appears to be a great start for production, the doomsday clock for the bull would appear to be moving ever closer to the zero hour.


Morning Comments - Everyone is beginning to think the same way, which is always dangerous

Jun 18, 2014



The Chicago wheat market pressed into lower lows again during the session yesterday, which came as a surprise to no one but this time prices were able to bounce back for fractionally higher close.  Prices have been solidly higher then in the overnight trade.  By no means does this confirm some kind of reversal signal but as I commented yesterday, we are beginning to see signs that we are exhausting the swing lower and could move into more of a base building pattern through the end of the month. 

There is really little I see in the news that would provide bulls with anything encouraging at this time.  Weather conditions through the majority of North America and Europe continue to be conducive for crop development and additional moisture appears to be in the picture for the areas in Russia where concerns had previously existed.  There is a growing concern that the wet conditions in some areas in the west and Northern Plains states are doing more harm than good but I would not say that has stimulated any buying just yet. 

Word from Ukraine is that harvest of winter crops has begun, which is earlier than last year because of very favorable weather and early yields have also been better than last year.  The Ukrainian Agrarian Federation has previously stated that they expected the overall grain production would fall short around 3 MMT from last year due to reduced use of fertilizers, but the early yields have not backed that up just yet.  Of course, this would more likely show up in spring planted crops were that to be the case.  Also, we now have many weather services backing away from the predictions of a major El Nino event, which should bode well for the weather outlook in Australia.  It is interesting to note that just a few months ago the media and some market participants were getting all frothy about an impending El Nino even though there is no reliable correlation between such an event and problems in Northern Hemisphere crops. 

In light of all this news, the question would seem to be, why would we find a bottom anytime soon in the wheat market?  The possible answer to that is because this is a futures market that is always anticipating news and at this point, we have factored much of this into the price level.  By no means would I be advocating any ideas of a major trend reversal, but I believe we are reaching very close to downside targets and the time of year when you look for seasonal lows so a corrective rebound could be in order after this month.     


July corn reached into another lower low yesterday as did December futures, but only fractionally there and both closed lower again.  Considering we appear to face no real threat to crops just about anywhere in the Northern Hemisphere, that would appear quite reasonable.  Prices have tried to rebound again overnight and seeing that we sit on top of key support ranges for the year and in a very oversold position we should be close to a corrective low but by no means would I expect the see a rapid reversal.  At least not one that could last for more than a couple days for the time being.

Generally speaking, lower prices should begin to stimulate demand but with the overall good growing conditions buyers would appear to be the in drivers seat and export interest looks routine at best.  We will see the weekly EIA ethanol numbers later this morning and should reflect continued solid production in the 270 to 275 million-gallon range but here as well, that has come to be expected.

It would appear that right now the best hope for corn, and I hate to use that word when talking about markets, is that we will have exhausted the selling between now and the June 30th reports and set up for a corrective rebound. We seems to be approaching that psychological level where no one believes that can happen, which is of course what you want.  Many things have changed in the markets over the years but one thing has not and that is human nature.  As such, contrary opinion still matters.  As with the wheat market, I will not be looking for major long-term reversals and advances but I do not believe now is the time to throw in the towel. 

We should begin seeing additional estimates for the grain stocks and acreage report by the end of this week and I read more and more commentary that is predicting substantially higher than trend line yields.  Granted, we will not have an "official" yield and supply/demand report until July 11th but I suspect that by the end of this month the psychology will be sufficiently bearish enough to be on the lookout for a corrective advance. 


Fund long liquidation continued in the bean market again yesterday with nearby futures reaching down to complete a 50% retracement of the entire January through May advance and down to the lowest point traded since late March.  November futures pressed right down against very key support just above 12.00 but once again, we have bent this contract quite hard but have been unable to break it, at least yet.

This continues to be a real frustration for the bear as we are looking at a record large acreage number this year, which should be ratcheted up on the 30th and by all accounts, great spring planting and early crop development.  All that said, the market recognizes that the bean crop is made, or not, in August and the bulls appear unwilling to surrender this early. One thing that could throw a caveat into that rationale would be a sizable adjustment upward in the stocks report and while that would seem reasonable to expect, it is by no means assured. 

As always with the current situation, export sales will be interesting in the morning but I have to think that unless that numbers reflects something quite negative that we should be very close to completing this initial wave lower in the bean market.   While I believe the overall top is in place, we continue to face a very tight balance sheet and until we move closer to the time that we have additional inventory of beans available to the market, we cannot afford to stimulate any additional demand.  As such, we should be nearing the point were a corrective rebound is in order. 

Morning Comments - Slipping and Sliding into June 30th

Jun 17, 2014



The early strength in wheat yesterday turned out to be rather short-lived and we pressed into lower lows for this swing once again. Defensive world markets are leading the charge lower as the Northern Hemisphere is preparing for the new harvest and anticipating solid production overall.

Harvest in the U.S. Southern Plains progresses albeit slowly with disappointing yields but that really comes as no surprise. Harvest is estimated to be 16% complete. As expected the ratings for the spring wheat did improve a touch with the good/excellent category up 1% to 72%.  Note that Minnesota and South Dakota did see decreases with the good/excellent category slipping 6% and 3% respectively due to the excessive moisture they have seen.

Export inspections did not provide any assistance for the bull yesterday either coming in at 14.6 million bushels.  This brings the total for this very young marketing year up to 27.61 million bushels, slightly below the pace a year ago of 41.8 million.

Futures have tried to stabilize again overnight but other than the recognition that we sit in a very oversold position, there would appear to be little threat to stimulate a rally. Funds are now short and I continue to look for nearby futures to head down for the gap objectives at the 5.67/5.62 level and ideally we will gap lower one last time to each that zone. 


I do not know if I should say wheat is dragging corn lower or if corn is dragging wheat lower but regardless, the two are feeding off of each other as we press into lower lows for the season.  It is not that corn is seeing any news that would stimulate buying interest.  There has been some excessive rains passing through the upper Midwest but overall conditions remain ideal and crop rating improved a touch again on the weekly reports.  76% of the crop now sits in the good/excellent category, up 1%, which I understand is the best rating for this time of the year in 20 years.  While we all know that the critical pollination period for the heart of the belt is in front of us but current forecasts of warming temperatures and consistent waves of moisture passing through give the bull little to hang their hopes on. 

Export inspections slipped a couple million bushels coming through at 43.4 million.  This brings the marketing year to date tally up to 1.415 billion bushels and was basically right on the 44 million bushel pace we need to reach the 1.9 billion bushel target. 

With managed funds still long over 140,000 contracts and a rapidly approaching pollination period with little threat in sight, it would appear this market continues to hold more than enough downside potential.  That said, I would like to think that short-term at least, we are near a reaction low.  On the July chart we should find support between current levels and 4.34 but on the spot chart, the extreme lows are all the way down in the 4.10 to 4.06 range.  We could very well remain in a sideways/defensive posture right into the reports on the 30th


Beans were not able to maintain early strength yesterday either and now with the overnight pressure we have nearby futures right back against last weeks lows and new crop pointed towards 12 once again. 

It would appear that the front months are now even failing on mildly positive news that just a couple weeks ago would have sent prices higher.  Export inspections were better than expected at 7.9 million bushels.  This was the best week of shipments in the past 5 weeks and brings the year to date total up to 1.56 billion bushels.  To reach the USDA target of 1.6 billion we need only average 3.6 million per week for the next 11. 

The NOPA crush report for May was within expectations but still solid at 128.8 million bushels.  This was nearly 4 million bushels lower than April but remains at a pace stronger than the USDA projections.

While the change was pretty insignificant, the good/excellent rating slipped 1% but stills reflect overall great conditions at 73%. The states with the largest declines were Mississippi, Kentucky and North Carolina. 

I would not expect to see significant declines between now and the June 30th reports but unless the USDA provides bulls with something fresh to chew on at that time, I suspect it will be difficult to maintain these price levels.   Support for nearby futures should be solid at the 14.00 level and 12.00 for the new.

Morning Comments - Expect the unexpected

Jun 16, 2014



Prices opened the evening session a touch to the soft side but quickly turn higher from there.  I suspect a combination of a very oversold market along with uneasiness about the civil war in Iraq and renewed tension between Ukraine and Russia all worked together to provide us with this little boost.  This is one of the realities of dealing with world markets in that issues or maybe better stated those dreaded "black swan" events may erupt and for those that fail to heed the caution, it can be a painful experience. 

Beyond this news though, there would appear to be little supportive for the wheat market currently.  There have been minor concerns voiced about a delayed monsoon season in India but ample time remains for rains to fall there. Conditions throughout North America, Europe and into Russia remain excellent.  Crop rating for spring wheat should improve in this afternoons report with 70 to 75% of the crop expected to be in the good/excellent category.  Quite a sharp departure from winter wheat conditions this year.

Although this may sound minor, July wheat poked fractionally through Friday’s high overnight, which is the only the second time we have been able to post consecutive higher highs since prices turned lower in early May.  While not enough to call for a reversal, these are the kinds of little signs to watch for when a market is approaching a low.  I continue to believe we have potential to reach down to gap targets between 5.67 and 5.62 between now and the end of this month.  If correct, that would mean the break is more than 80% complete. 


The corn market has struggled to maintain a positive stance this morning but considering we were able to post and hold minor gains this past Friday, just holding stable is a minor victory.  Looking ahead it would appear that we have ample amount of rain in the forecast for the eastern Corn Belt and to the west an overabundance.  You can have too much of a good thing.  Coinciding with this is are warming temperature so overall, it looks quite conclusive to crop development and there seem to be more and more discussion of above trend line crops.  I have spoken with people recently that believe that if we continue with current development pace, central IL will be posting some corn yields over the 300 bu mark.  It is a long time until harvest but if there were to be a year with that kind of potential, this would seem to be the one. 

Managed funds continue to liquidate long positions and if we make it through the 4th of July without a major weather issue, I suspect they will have moved the short side of the ledger.  The expectations for the weekly rating this afternoon call for unchanged to possibly a 1% improvement in the good/excellent category.  Last week we stood at 74%. 


It would appear that the rolling forward of July longs in the bean market is done at least for now as bull spreads are working again this morning.  The Goldman roll should be complete but part of the front end buying could be in anticipation of the crush numbers to be released later this morning.  The trade is expecting to see a number in the 125/127 million bushel range compared with the April crush of 123.5.  Crushers have the inventory of beans and continue to operate in the black so will continue to squeeze every bushel they can.  Of course the declining world DDG market is pressing meal, which ultimately could change the profitability if it continues.  Managed funds continued to liquate longs last week. 

While the front end of the bean market appears to have finally broken down, November futures remain in a holding pattern and could continue to do so until we reach the end of the month and the quarterly reports.  If they do not receive a real shot of bullish adrenaline at that time, it is difficult to imagine that the 12.00 level will be able to hold for long.


Weekend Commentary - Slaying Giants

Jun 13, 2014


Did we witnesses a David and Goliath story this past week?  Or maybe it would be more akin to the ancient Norse and Germanic mythology, where the somewhat naïve hero emerges to do battle with the Giants who guard the gold and against all odds emerges triumphant.  Alright, it is probably not that epic, but, it is notable that, in their Virginia primary this past week, a virtually unknown candidate, Professor David Brat, toppled Eric Cantor, the second ranking Republican in Congress and rising star/power broker.  Making it even more interesting is the fact that Mr. Brat won by a double-digit margin, 11%, and was outspent by a 40 to 1 margin.  Many have cynically pointed out that Mr. Cantor spent more money in three different Virginia restaurants for fundraising events, estimated at $168,000, than did Mr. Brat for his entire campaign, at $122,000.  We have been led to believe that it will always be the candidate with the largest treasure chest who will wear the crown, and for good reason. So what was different?

While I certainly cannot profess to know the answer to that question, you can be assured that political think tanks, advisors and national organizations have been debating this outcome ever since the results were announced, and some of the responses have been almost comical.  The most seemingly outlandish came from a paid pollster who blamed it on excessive voter turnout.  It appears that in the 2012 primary for this seat, 46,000 voters turned out; this year there were 65,000 who cast ballots.  According to their analysis, these additional people must have been democrats intent on pushing Cantor from office.  This theory would be akin to the famous "vast republican conspiracy" that Hillary Clinton referred to when her husband was president, only in reverse.  As you might suspect this particular pollster missed the outcome rather badly and was looking for a scapegoat.  Other explanations sound more feasible, such as voters in Mr. Cantor’s conservative district felt that the longer he had been in Washington, the closer he was sliding towards the dreadful middle and he had to be taught a lesson.  Others blamed it on the fact that he was actually willing to discuss immigration reform and was aligning with the group that has labels itself as "reform conservatives", who are more interested in working in and with the system than burning it to the ground.  Finally, there are those who feel that Mr. Cantor’s tight relationship with the financial community alienated him from the middle class voter, who perceived that he was only looking out for big money and big business to line his campaign coffers.  Note that the Securities industry and large banks have become one of Cantor’s largest donor bases.

With the exception of the "vast democratic conspiracy" theory, I suspect the other explanations, and I am sure several more that I missed, are all reasons for this upset.  That is not to take away from what I understand was a straightforward Libertarian message delivered by Mr. Brat, proposing less government, flat tax reform and letting free market principles be the guide. That is a message that resounds for many conservatives, at least until the reforms impact them negatively. 

That said, it would be great if this upset, as well at the run-off that was forced in Mississippi with Thad Cochran, were a sign of a fledging groundswell of discontented voters, finally fed up with the status quo and not going to take it anymore.  I may be wrong, but I do not believe it will be quite that monumental.  Mr. Cantor has been sent to Washington seven times now and it would appear that people in his district believed that he was no longer in touch with their needs and this was the most effective way to let him know that.  Kudos to those voters, we need more people involved in the voting process, not an apathetic resignation that nothing can be done.  It would seem though that we could still be looking at a real battle for what will represent the heart and soul of the GOP and it makes the entire political landscape a lot more interesting.  Against all odds, David can still defeat Goliath.

Morning Comments - The Invisible Hand at Work Again

Jun 13, 2014




It is early in the day but contrary to recent rumors, markets can trade higher.  Maybe it is the "Honey Moon" where we see a full moon lines up with Friday the 13th but I doubt it is anything quite so mysterious.  Not to mention the next one does not line up until 2098, which is a long time to wait for another rally.   A little short covering sounds more reasonable. 

That said, there is by no means anything within the news that would be construed as positive.  Wheat harvest continues to advance and has reached into Kansas and while overall yields have been sub-par, that comes as a surprise to no one. 

The uber-competitive nature of the world trade right now was highlighted with Egypt’s recent tender for wheat.  Ultimately they purchased 180k MT from Russian and Romania and the Black Sea continues to be the place to look for cheap supplies.  ABARES, the research bureau for the Australian Department of Ag released updated crop estimates and is predicting a wheat crop of 24.6 MMT.  This is slightly below the recent USDA estimate of 25.5 MMT and last years exceptional 27 MMT. 

It will be interesting to see if we can hold the early strength into the close today as we have not been very successful at accomplishing that this week but, it is Friday.  Needless to say, this market is quite oversold via the short and intermediate indicators but I do not see a story to provide stimulus for a reversal at this time.  Seasonals call for defensive trade through the end of the month.


It is not that the corn market uncovered any key news story to create buying but futures did make a stand yesterday and finished higher.  Funds were estimated to have purchased around 4,500 contracts and we are higher again overnight which I suspect is additional profit taking for the weekend. Seeing that we have now erased the entire risk/demand premium that we had built into prices between February and May and sit in a zone of good support, it would make sense that we could begin to find a few bottom pickers.  That said, funds still carry quite a bit of length in this market and it is becoming increasingly difficult to defend that position, particularly when any long position taken after February 1st is now in the red. 

The Buenos Aires Grain Exchange released new estimates and are predicting a 25 MMT corn crop.  On Wednesday the USDA pegged that crop at 24 MMT.  Of course they still need to get it harvested and farmers have been in no real hurry with the current estimate at 42% complete.  This is about 20% behind normal.  One of the negatives about this situation is that it potentially pushes the supply further into the summer making that much more corn available as we approach harvest in the Northern Hemisphere.  This could also turn out to be a negative side effect of the problems in Ukraine this year.  Because of the uncertainty, they have little in the way of sales on the books and recently have been aggressive in trying to sell new crop corn and for a country with the financial mess they have, exports are critical. 

We seem to have one of these classic situations where technically the market is so oversold and into good cycle dates as well so you have to be prepared for a rally but, with the fundamental picture looking so overwhelmingly bearish at this point it is difficult to imagine we would have much room for anything more than a token short-covering bounce.  It is true that lows do occur when everything looks the worst, kind of like the old saying about being the darkest before the dawn.  Still, the current darkness appears to have been created by consistent rain clouds providing ample moisture for a developing crop, which of course brings up the other old saying about rain making grain.   


Even though we have seen the bean market walk along the edge many times over the past few months, it was always able to maintain its balance because of the big demand/tight supply story.  That is until yesterday when bulls could no longer hang onto balancing pole and slipped or were pushed over the edge.  Granted, the need to liquidate long July futures forced part of this move but regardless, once the signal has been triggered, it can become self-fulfilling. 

As we have noted several times, the cash market has not acted like there is shortage of inventory in this country.  Certainly some of this has been due to the record amount of imports that have been arriving but many believe, myself included that the USDA has understated last years crop, which should be revealed on the grain stocks report on the 30th if that were the case.  Of course the cautionary note there is that there is certainly no assurance that will happen.  Also pressuring the bean complex this week has been the DDG trade.  After China again raised the issue of unapproved DDG’s, this market has taken a nosedive and livestock producers around the world have been looking there instead of meal for protein needs. 

While we cannot say with certainty that we are out of the woods just yet, this would seem to confirm that when we know about a problem long enough in advance, there will ultimately not be a problem.  Realistically that would be a validation of the "invisible hand" of the free market. 

There has been no follow-through from washout in today’s activity but the day is still young.  I do not think we can afford to get carried away on the downside, at least until we find more answers about supply but that said, I would not be surprised to see nearby futures slip down to the 14.00/13.90 zone.  As with corn, crop conditions look near ideal and I suspect that planting progress next week should reach to the 90 to 95% range.  We know that it will eventually be the August weather that matters but for now, the bean bull story appears to have worn out its welcome.

Morning Comments - Good weather dominates the trade

Jun 12, 2014




It would appear that there were a still a few bulls in the wheat market, hoping against hope that the USDA would offer them a morsel of bullish news in the reports yesterday but when that failed to surface, demoralized, they headed for the exits.  This was not unlike the sensation that we Blackhawks fans suffered when the Kings scored the overtime goal in game 7 of the conference finals this year. 

I am not going to work through all the numbers but it is notable that the cut in wheat production of 21 million bushels came solely via a .4 b/p/a reduction in yield with no reduction in acreage.  That does leave the door open for additional reductions after the June 30th acreage report.  Even with the lower production estimate, after adding in 10 million additional bushels in carry-in and slicing usage 45 million the net computation added 34 million to the ending stocks, which no one was really anticipating.  The cut in US production was compensated by increases in China, India and Russia so the world ending stocks were bumped up 1.19 MMT, which if correct will be the highest level in four years.  It is easy to see why the bull was discouraged.

At least the export sales were a bit encouraging for the new wheat this morning.  For the 2014/15 marketing year we posted sales of 570,100 MT or 20.95 million bushels.  The trade had been expecting something in the 9 to 17 million range.

Prices have tried to stabilize this morning but that would hardly qualify as a signal of a low.  As I commented yesterday, we may have the door open for a run at the gap objectives down around 5.65 before we finish this flush and until we at least begin to witness one to two weeks of sideways congestion, the bear maintains control. 


On the domestic front, the USDA elected to make no changes on the supply/demand reports.  The surprise was that the trade had expected them to do so.  We can now shift our focus to the June 30th acreage and grain stocks figures, which could have a major impact.  We are conducting our survey for acreage right now but I am really not anticipating much change in the overall corn figure but the grain stocks number could be very interesting.  The 5.3 billion bushels feed/residual figure has always been a bone of contention and may have been somewhat skewed by the rebuilding of the world pipeline and this should be the first verification since March.  This will also be a check as to if the 14/15 estimate of 5.25 billion would appear realistic.  The average usage in this category for the five crop years prior to 2013/14 was 4.799 billion. 

It is not that the trade paid much attention to it but the weekly ethanol numbers released yesterday were very solid.  Total production came in at 277.54 million gallons, which should equate to around 99.8 million bushels of corn.  The 10-week average is 270.27 million gallons or 97.2 million bushels of corn.  Stocks did grow again this past week but by a lesser amount of 7 million gallons.  Over the past 10 weeks inventory has grown by 107 million gallons. 

Export sales fell within the trade estimates but slipped again this past week.  For the 13/14 crop year we sold 409,700 MT or 16.13 million bushels.  This figure is down 26% from last week and 17% from the 4-week average. For 14/15 we sold 105,500 MT or 4.15 million bushels. 

Corn did try and trade higher in the early going but found willing sellers as the funds continue to reduce their length.  Nearby corn has reached into the support zone between 4.44 and 4.34 but has shown no sign of bottoming just yet as there is little sense in trying to grab a falling knife.  It is obvious that we are quite oversold but with overall weather conditions near ideal, there is little incentive for buying other than out of necessity for hedge purposes.  We should begin to see values stabilize from here but other than a dead cat bounce, you have to use your imagination to think of a reason for a decent rebound. 


While the USDA did make a few revisions in the supply/demand figures, they were basically window dressing.  Crush for the 13/14-crop year was bumped up 5 million taking this and next years carry out down 5 million in the process.  There were very minor changes made in the world numbers as well with the ending stock raised just 650k MT  to 82.88 MMT but keep in perspective that would be a record inventory.

It would seem that the biggest questions that remain unanswered are; can we import 90 million bushels, will there be cancelations of existing sales and possibly most important, was the crop size understated?  We will have to wait several months to find the answer to the first two, but we should know more about crop size on the 30th of June.   From the looks of the action this morning, it would appear that the long is becoming impatient with the wait.

In light of the overall picture old crop export sales were solid at 86,700 MT or 3.19 million bushels.  This pushes the total sales figure to 54 million above the USDA target of 1.6 billion.  Sales for the 14/15 crop year came through at 403,300 MT or 14.8 million bushels. 

While I understand the volume is not excessive, we have seen July futures finally press through key support this morning and have reached down to the lowest levels traded since the end of March. While much of this is due to rolling out of July positions, it still produces a negative signal.  New crop futures, while under pressure have not violated key support at this time and bulls may be content to maintain positions into the reports at the end of the month.  If that were to be the case, I suspect their preacher will need to deliver a pretty positive message for them to keep the faith.

Morning Comments - Grains cannot find a friendly story

Jun 11, 2014



We continue to pile on the negative news for the wheat and corn markets and as would be expected, they respond with additional losses.  With the breakdown in spot wheat futures, we did finally close the gap at 6.02.  Prices have bounced a bit overnight as shorts cash in a few chips before the reports to be issued later this morning.

It would appear that weather conditions throughout the entire Northern Hemisphere remain in a moist cool pattern and while in some wheat areas, we have reached the point that has become counter productive, as a whole it will be perceived with a "rain makes grain" attitude. 

Evidently that has also been correct in other parts of the globe as Conab released updated crop estimates for Brazil yesterday and now project their wheat production this year will reach 7.4 MMT.  Currently the USDA is estimating production of 6 MMT. 

As I commented initially, the negative news seems to keep piling on in the wheat market and I while I would not expect to see anything overtly negative from the USDA this morning, neither am I looking for anything bullish.  Funds continue to sell and we know this market is quite oversold but with this push into new ground there is a possibility that we could see wheat continue south and reach the weekly gap targets down around the 5.65 level without a corrective rebound first.  The old voice of the tomb could be on the mark this year.


You would be hard pressed to find a positive story for the corn market as well right now.  The weather outlook calls for rains to reach pretty much every corner of the belt and temperature should begin climbing as we progress into late June and July but any talk of a "ridge" appears to have been blown away (pun intended).  If this is correct, we will have placed little to no stress on corn right into pollination for a large portion of the production area, which theoretically places us in a position for record production numbers. 

Conab also released updated numbers for Brazilian corn production and now forecasts a crop of 77.9 MMT, up 2.6 MMT from their last estimate.  The Rosario Grain Exchange has boosted their estimate for the Argentine corn crop by 600,000 MT to 24.5 MMT.  On the May supply demand estimates the USDA had Brazil pegged at 75 MMT and Argentina at 24 MMT so we shall see if they make any upward revisions to ending stocks later this morning. 

While I would not anticipate that we will see any real surprises on the report, the estimates stand at 1.157 billion for the 13/14 ending stocks, 1.746 billion for 14/15.  For the world number the average stands at 168.3 MMT for 13/14 and 186.6 for 14/15.  Of course once we have moved beyond these number the trade can begin discussing the more important June 1st stocks report. 

The path of least resistance in corn continues to be lower as funds continue to liquidate their long position.  Prices have stabilized overnight but with the stab into lower lows yesterday we may have opened the door for a slip down to the 4.35/4.37 level for spot futures. Needless to say, we are quite oversold but can remain that way for some time if we lack a stimulus to scare the bear.  


The bean market continues to fight a much different battle and that of course centered on the fine supply/demand balance that we are teetering on in this country.  Nearby futures did close higher yesterday but could not maintain the early highs and appear to be congesting once again at what has been a three-month base.

Conab actually lowered their estimate for Brazilian bean production but by a slight 570,000 MT to 86.05 MMT.  This compares with the last USDA estimate of 87.5 MMT. Keep in perspective this is still a large production number and world ending stock of 66.98 MMT would be the second highest on record. 

The average estimates for the reports this morning has 13/14 bean ending stocks at 127 million bushels and for 14/15, 322 million.  For the world ending stocks the trade is looking for 66.8 for 13/14 and then a whopping 82.5 MMT for 14/15.  As I have stated previously though, the number that will matter for beans does not come until the 30th when the USDA releases the June 1st grain stocks estimates.  That report could be explosive for prices as the bear is expecting to see additional beans found, potentially from an understated crop.  Needless to say if that were not to be the case…

While the bean market would not appear to have anything fresh to drive prices higher in the old crop months, it is sitting on top of support and appears poised for a technical rally but I suspect if correct, we remain within the existing trading ranges.  New crop is another story, we have continued to rebound this week I suspect primarily through spread action but once that has wrapped up, it would be difficult to find a reason we should continue to hold these levels. 

Morning Comments - Waiting on Uncle Sam

Jun 10, 2014



It was difficult to find many friends in the wheat market yesterday and particularly in Chicago where we surrendered much of Friday’s strength. World prices continue to be a drag on our values and with harvest advancing in the south, buyers have little reason to step in front of fund selling. Rain in the southern plains did support the KC market but I have not seen anyone predicting extended delays.  Quality could be the bigger issue.  Harvest to date stands at 9% compared with a normal pace of 12%. 

No such problems exist in with the spring wheat though.  On the first condition report of the year the crop was given a 71% good/excellent rating.  We all recognize that will not assure a good crop but it is certainly in stark contrast to the conditions winter wheat has suffered through this year.  The good/excellent rating for winter wheat was unchanged at 30%.

Export inspections for the week ending June 5th totaled 19.1 million bushels and is technically split between two crop years.  This was within the range of estimates but slightly below the 10-week average of 21.5 million. 

I would suspect to see quiet and flat trade now through the reports in the morning. The average estimate for old crop carryout is 588 million and for new 550.  The World numbers could be more interesting and if there were to be a surprise I suspect it would be there.  Baring a surprisingly negative number tomorrow, July futures should continue to find support at this 6.00 level.  


Even though the corn market was pressed into slightly lower lows during the session yesterday, prices did bounce into the close and have been able to climb a bit now during the early morning hours.  This is the type of action you would expect to see around a reaction low. 

There would appear to be little in the news that would be classified as positive right now.  The good/excellent rating on corn was down 1% but 75% of the crop remains in that category.  The most notable decline came in Nebraska where violent storms passed through a week ago and North Carolina, each seeing their rating cut by 6%.  There are no significant changes in the weather outlook and those who tried to promote the threat of a ridge building later this month could catch no traction for the story.

Export inspections bounced back nicely from the previous week as we loaded 45.2 million bushels.  This moves us back above the 44.1 million we need to average through the balance of the year to reach the 1.9 billion target. 

For tomorrow’s release the average estimate for the 13/14 crop is 1.157 billion bushels and for 14/15 1.746 billion. Last month these two numbers stood at 1.146 and 1.726. 

As I commented initially, this little congestion action that we are seeing right now would normally be indicative of a low and as long as Uncle Sam does not provide us with a negative surprise tomorrow we should be in line for a corrective bounce, potentially into the first week of July.  Keep in perspective, without a dramatic change in weather, the advance could be disappointing. 


The bean market held its ground in face of the pressure in the grains yesterday with nearby futures continuing to hover just above very key support areas and I suspect leaving bulls feeling just a bit uncomfortable.  They have been here several times before over the past three months but as I have commented before their story is becoming a bit stale.

Export inspections were as expected at 4.5 million bushels.  The average is trending lower but that number is still just above the 4 million needed each week to reach the 1.6 billion bushels target. Planting progress remains ahead of normal reaching 87% complete last week and the first nationwide rating places 75% of the crop in the good/excellent range. 

With the weather outlook near ideal, the action in November beans continues to baffle the bear but this market, just like corn and wheat, sat in a short-term oversold position after the recent setback. It would appear that we are in the process of correcting that but I doubt it will be able to carry much above the 12.40/12.50 level unless the government provides with something positive.

The average estimates for tomorrow have the 13/14 ending stocks at 127 million and 14/15 at 322.  Last month these numbers were at 130 and 330. 

Morning Comments - Little for the bull to hold onto

Jun 09, 2014




The wheat market began the overnight trade with additional follow-through from the turnaround on Friday but the momentum waned fairly rapidly with Chicago now in the red and KC and Minneapolis holding minor strength.  Other than a possible technical rebound there does not appear to be much supportive news around the morning.  Managed funds have already taken note of this and sold another 18,000 contracts this last week and could very well have moved to the short side by now.

Focus for the week should center on the weather outlook and the June supply/demand reports that will be issued on Wednesday. There are chances for excessive moisture through the Southern Plains this week and could heighten the concerns of quality/yield issues but this should be offset by the ongoing good conditions in Europe and across into Russia.  Even the Volga region has forecast for good coverage and quantity of moisture this week. As far as the reports on Wednesday the trade is looking for few changes from last month. 

The first spring wheat crop conditions should be released this afternoon and the trade will be looking for good/excellent rating higher than this date last year when they stood at 62%. 

I still believe that we should be poised for a corrective rebound but it would appear that we will be bucking a decent headwind in the process.  If correct, it should provide opportunities to make additional sales. 


The big turnaround posted last Friday evidently did not scare too many bears from the corn market as prices are back under pressure this morning.  Considering the near ideal growing conditions that we now see across the majority of the corn producing regions that is little wonder. 

While I recognize that weather forecasts are apt to change but the outlook through the balance of this month would appear to offer little for the bulls to hold onto.  After mid-month there are calls for a normal high-pressure system to move in with warming temperature but with ample moisture prior to this, that sounds like a great mix for crop development.  Crop ratings this afternoon should show a little improvement on top last weeks’ solid ratings. 

It was announced over the weekend that China will no longer issue import permits for DDG’s from the United States.  As you might suspect, the reason being, MIR162.  I suspect this was also responsible for some of the overnight pressure and it is a topic that will hang over the corn market until China either approves this strain or have a short crop, which could ultimately be the reason they approve it.  With ample inventories on hand currently they have time to be fussy. 

While there will be a lot of discussion between now and Wednesday’s supply/demand estimates, it is unlikely that the USDA will be making many if any revisions on this report, particularly for the new crop.  While there could be a few adjustments for the 13/14 balance sheet, with the quarterly grain stocks figures just ahead on the 30th, it would stand to reason that changes on this report would be slight. 

Seeing that the corn market sits in a very short to intermediate oversold position, I still believe that we have potential for a corrective rally in the next 30 days.  Ideally prices can congest at least through mid-week.  That said, unless the weather outlook changes significantly or the government gives us a surprise on the acreage and grain stocks numbers out on the 30th, it is difficult to think they will be much more than short-covering rebounds and as such, should not carry for extended periods. 


We have a mixed bag as we begin this week in the bean market, with additional bull spread unwinding holding up the new crop and the Goldman roll pressing the nearby.  According to the commitment of traders report, managed money remains long in beans but the position was reduced sizably last week.  We are teetering on the edge of rolling the bean market over and the bull is going to need a shot of adrenaline soon.  While that could come via the reports on Wednesday, I suspect the numbers will be a re-hash of the same story we have be hearing for months and there will not be any significant changes until after the June 30th stocks numbers. 

Planting progress this afternoon should reflect an increase of another 5 to 10% and reach the 85% + level. 

The bean market has no apparent weather threats on the horizon and if Uncle Sam brings us nothing new to talk about on Wednesday, I have to believe that the path of least resistance, and particularly for the new crop months will be to the downside. 

Weekend General Commentary - Slow and steady improvements

Jun 07, 2014


June 6, 2014

It has taken six years and four months, but we finally made it.   As of May of 2014 there were 138,463,000 people employed in the United States, surpassing the previous record of 138,279,000 in January 2008.  This was accomplished after we added 217,000 more jobs last month, which also happened to be slightly above analysts’ expectations of 213,000.  While certainly a milestone for our recovery, I understand that was the slowest recovery to a peak employment number post-WWII.  Just as important is the fact there are over 7,000,000 new people that have been added to the category of employable during that timeframe, which technically makes up over 70% of the total number of people that remain unemployed.   Regardless, this is positive news and provides additional verification that our overall economy continues to expand at a slow but steady pace. We have added over 200,000 jobs each month since February, which is longest expanse in which this was accomplished since late 1999.   

The largest gains were made in professional and business services, up 55,000, matched by healthcare and social assistance, which gained 54,900 new jobs.  Next in line was food services and drinking places adding 32,000 jobs, then transportation and warehousing, up 16,000.  Manufacturing, where high wage jobs are normally found, was up 10,000 and construction up 6,000. The average hourly earnings were up a nickel with no loss in number of hours worked.  The separately released unemployment number was unchanged and stands at 6.3%.  

The sticky wicket remains the labor-force participation rate that was unchanged from last month at 62.8%, which again, is at the lowest level since 1978.  Certainly, baby boomers hitting the retirement milestone, at least those who can afford it, have an impact on this number. But so do the 9.8 million people who remain unemployed of which 3.4 million or 34.6% are classified as long-term unemployed, meaning they have been out of work for more than 27 weeks.

As I mentioned previously, overall these numbers have to be construed as a positive signs for the overall U.S. economy and should provide Janet Yellen and crew ample reason to cut bond purchases another $10 billion a month when they gather together on the 16th and 17th of this month.  Additionally, that sounds a sight better than the moves they are now taking in Europe. This week the European Central Bank made a historic decision to cut its benchmark interest rate 1/10th of a percent in an effort to stimulate growth and ward off deflation. That may not seem like much of an earthshattering change until you consider the rate now stands at -0.1%.  If you plan to leave money on deposit, you have to pay them for the privilege.  And we though it was difficult to earn interest here. 

Morning Comments - The Grain Matador had the advantage this week

Jun 06, 2014



Chicago wheat continued to give up ground yesterday but both KC and Minneapolis stabilized and all three are higher this morning.  About the only piece of news that could be construed as a positive factor currently was the Informa estimate released yesterday.  They have pegged the winter wheat crop at 1.396 billion bushels compared with the last USDA estimate of 1.403.  Granted, 7 million bushels is not much of a swing but I believe the trade is leaning towards a slight increase versus the May estimates. 

The weather outlook both domestically and internationally continues to look generally favorable for crop development.  As I commented yesterday, there is a little concern about the quantities forecast for areas to the south/southwest as excessive moisture now can begin to create quality issues but I cannot say if that has really stimulated any of the overnight buying.  An oversold technical picture and a weekend has likely done more to create that.

The June supply/demand reports will be issued on the 11th with wheat the only crop that should see much in the way of adjustments.  I suspect now that we have reach down against the 6.00 level in nearby Chicago futures, prices will drift into more of a sideways pattern between now and Wednesday. 


The path of least resistance in the corn market continues to be to the downside and nearby prices pushed overnight to the lowest level traded since the 27th of February.  The forecast for favorable crop development conditions is certainly the overwhelming factor driving us down. 

We shall see updated commitment reports this afternoon but managed funds should still hold a reasonably large long position and while that may not be completely unwound until we move a bit closer to pollination, there would appear to be little rationale to bring in new buying.  With the Goldman roll ready to begin, that has created additional pressure on the front end. 

The trade should be looking for few if  any changes in the supply/demand reports next week, particularly in the domestic numbers.  There has been nothing that out of the ordinary in planting or crop development this far that should inspire the government to venture away from trend line figures or the March acreage estimates.  That said, with the conditions to date and the current forecast, you can be confident that many analysts already have ideas of higher yields in their outlook matrixes and right now that would be hard to argue with. 

There could be some adjustments on the world ending stock estimates but here as well, I would suspect they would be higher.  The Buenos Aires Grain Exchange reported yesterday that corn harvest down there continued to run behind schedule as farmers continues to work on beans.  They estimate that corn is now 38.5% harvested versus a year ago at this time at 61%. 

Prices have tried to stabilize this morning and I would not be surprised to see us move flat now into the reports on the 11th.  Indicators are oversold and we sit on a psychological level here at 4.50 but it is difficult to think of a good reason as to why we would see much more than a dead cat bounce for now.  There is a possibility that we could turn flat until we reach the quarterly reports on the 30th.


The bean market has been bent pretty hard this week and appears to be on the verge of breaking.  Nearby futures have once again pressed down against the low end of the trading range between 14.60/14.55 and this time around have violated a few other key indicators in the process.  Prices are trying to hold and even bounce a bit this morning but do not appear to have much vigor at this point.

Overall the news remains pretty quiet and as we I have discussed many times, the bulls continue to cling to a good story with the apparent supply/demand outlook but as of late, it seem to be having a tough time attracting new readers.  As with corn, for the reports next week it would be doubtful to see much change in the domestic number, particularly with critical grain stocks figure just around the corner.  World numbers could be revised a touch higher though.  The Buenos Aries Exchange released harvest estimates for beans as well and report that 80.6% of the crop has now been harvested. 

This market sits in a short-term oversold position and as I outlined above, right on top of very key support so I suspect that we will try and hold at this market at least through the reports on the 11th.  Unless we uncover something surprisingly friendly or more important, a response in the cash market that would indicate beans just cannot be found, it would appear that this aging bull is going to find it difficult to remain upright. 


Morning Comments - Weather trumps all

Jun 05, 2014



The wheat market was finally provided a crumb of good news yesterday and responded with a token bounce.  Egypt has loosened grading standards for imports and will allow 13.5% moisture and while that will most likely just help to move additional French wheat into that country, it does potentially boost world trade which in a round about way comes back to help us as well.  It is not much but when you have been on a four-week washout in prices and sit in an oversold position, sometimes that is all you need to break the negative psychology, at least temporarily. 

The census data figures for April were released yesterday reflecting exports for the month of 107.6 million bushels.  This brings the June through April exports up to a tally of 1.088 billion bushels. With the numbers exported through May and to date we should come very close to the 1.185 billion projected by the USDA. 

The export sales figures released this morning were a bit disappointing for the new crop year.  We sold 341,400 MT or 12.5 million bushels.  This was above the 10-week average but towards the lower end of trade expectations. 

Prices continue to struggle a bit this morning but for the past three days now we have at least stopped moving into lower lows.  Technical indicators are obviously oversold and as such there is little incentive to attract new selling but neither is there much here to scare the bear just yet.  There are some trying to raise concerns that the recent rains are now becoming counterproductive and will be creating quality problems and while that may be the case, I doubt that will attract too much buying interest just yet. 


With a large swath of the corn belt receiving a nice drink over the past 48 hours and forecast for generally moist conditions and cooler than normal temperatures for the next 10-day to 2-weeks, bulls do not appear to have much of a story to tell.  That said, as I commented yesterday, when everyone believes we know all the answers, we probably need to be ready for a new question.  We have removed the entire risk premium that was built into prices after the middle of February this year but by no means have we removed all the risk.

The April census number confirmed basically what we knew; corn exports have been solid and we shipped a record amount of 222.2 million bushels during the month of April.  The ethanol production last week was also solid with an average of 938,000 barrels per day, which equates to around 99 million bushels of corn.  Inventories did build again though, increasing 32 million gallons and reaching the largest stocks in 15 months. 

Exports sales came through at the upper end of estimates as we sold an additional 550,800 MT or 21.7 million bushels.  Year to date our tally now stands at 1.817 billion bushels, leaving just 83 million more to reach the USDA target of 1.9 billion.  There are 13 weeks left in the marketing year.  Sales for the 14/15 marketing year were weak 800,000 bushels. That is bushels, not metric tonnes.     

When you look at all the above numbers, you might ask why prices have continued under pressure this morning and the obvious answer would be, weather trumps most everything else this time of year.  Undoubtedly there were some areas in western Iowa and Eastern Nebraska that received "too much of good thing" this week and particularly for those that were hit with hail, but in the great scheme, the attitude will be "rain make grain." 

As I have commented previously, the longer-term picture is turning increasingly more negative for corn but I have to believe that this initial wave lower has become over extended for this point in the year.  We should be in line for a corrective rebound as we move deeper into June. 


Most of the demand news in the bean market has been positive over the past 24 hours but it is interesting to note that prices do not appear to be responding in-kind.  These are the type of signals that could be providing us with a warning that the bull has grown very tired. 

The take from the Census report was a glass half-empty/half full type of scenario.  Exports for the month were a healthy 43.7 million bushels, which was not a surprise and I believe traders were more interested in the import numbers.  For the month we imported 7.1 million bushels of bean, which sound impressive as it was a record for that month but, many in the trade were expecting to see at least 9 million bushels.  This brings the total for the year up to 30.48 million bushels, which is only 5.5 million below the record import number set last year but also means we will need to import 15 million per month for the balance of the year to reach the USDA projection of 90 million bushels.       

Export sales were in the plus column again last week as for the 13/14 crop year we sold 41,300 MT or 1.5 million bushels.  Total sales now stand at 1.653 billion, which is 53 million above the USDA estimate.  Sales for the 14/15 crop year were soft at 230,500 MT or 8.5 million bushels.

As I commented initially, it is noteworthy that beans have not reacted positively to all this news but then again, none of it is particularly surprising.  It also raises the question again of why is the cash market not screaming for beans?  I am afraid we will not find an answer at least until we see the quarterly stock figures at the end of this month and it would appear the bull is really going to need a batch of fresh feed by that time if he is to remain upright. 


Morning Comments - Bears are telling the better story

Jun 04, 2014



The fundamental case for the bear continued to press grains lower yesterday with wheat and corn now feeding off of each others bearish news.  Black Sea wheat continues to be discounted as they try and clear inventories before the arrival of new crop, which drags down Europe and then of course the U.S.. Weather across Europe and into Eurasia continues favorable with the Volga region even forecast to see .5 to 1 inch of rain this week.  In the U.S. baring the ongoing drought in California, it would appear that just about every growing region is seeing moisture, excessive in some locales.  Regardless, in many traders minds that still translates to "rain makes grain" and is weighing on the psychology of all the grain and soy markets. 

One final note on weather; while an El Nino is still predicted this summer, I see several meteorologists are now talking about it being a "weak" El Nino.  Realistically, there appears to be little correlation between these events and U.S. grain production so should not have been much more than a conversation piece but large El Nino’s have historically impacted Australian and Indian crops.  While this is nothing that would impact prices for months ahead, a weak event could take away just one more piece of the bulls’ story. 

In fact, it would appear that it is now that the bear that has the story at this time but as the old saying goes "when everyone thinks the same way, no one is thinking anymore."  We may not quite have reached that point but the lack of overnight follow-through may be an indication that we are close.  While I am not advocating a major reversal, as the longer-term picture looks negative but short-term we are quite oversold and are reaching a psychological 6.00 level so a corrective rebound could soon be in the cards. 


The corn market rallied consistently from January final production estimates through early May with basically 60% of the advance occurring after mid-February.  As of the lows yesterday, anyone who jumped on the bull bandwagon from the 15th of February forward is at best breaking even but more likely in a negative position.  Not a comfortable position for a bull, particularly with managed funds still quite long. 

As with the wheat market, we realistically have no bull story for corn at this time.  Yes, demand has remained solid and the livestock slaughter numbers would reflect that both cattle and hog herds are in the rebuild process but with the crop basically planted, ample moisture falling and in the forecast for the next couple weeks and great ratings, it would be a tough sell to convince someone that corn should go up.  I have already read discussions about how much above trend-line corn may yield this year and while that seems to be very premature, that would appear to be the psychology of the market at this time. 

We will see the weekly EIA ethanol numbers later this morning and export sales in the morning which I cannot imagine will do more that re-confirm the consistent demand but the market focus has shifted to supply, which for all intents and purposes does not look threatened moving forward. 

Yes, we are at risk of witnessing additional long liquidation that could press corn through the current support around 4.55 and potentially kick off another round of sell stops and so on and so.  As I commented under wheat, it would appear that we have reached the point where everyone is thinking the same way and hence, many have quit thinking.  The blinders are back on and this time worn by the bears.  We need to see prices at least begin to stabilize for the next few days but I suspect we should be close to witnessing a corrective rebound as we try and build some risk premium in before pollination. 


So far this week we have seen nearby beans post an up Monday, down Tuesday and would appear now an up Wednesday and in the process have gone nowhere.  New crop prices have been under pressure until today but even then remain trapped within the existing trading range. Considering we still have many unanswered questions about the balance between supply and demand in beans, it is understandable that we remain up at these levels.

Domestic cash markets remain strong but as I have commented previously, there has never appeared to be any panic to attract inventory.  I understand the processing industry has a solid 30-day supply.  If correct that would carry us out to the June 30th grain stock report, which should be key this year.  Many in the trade, myself included believe that the USDA underestimated the size of last year’s crop and that report should provide the check.  I may end up with egg on my face when that is released but that seems to be the only rational explanation for the availability of beans so far. 

New crop is a completely different story and while we have bounced overnight, other than support from bull spread unwinding, it is difficult to come up with reasons as to while this market can hold these levels for much longer.  New crop demand has been solid but even here I suspect that if there is no crop threat moving forward, buyers will be content to allow the price to come to them.  I am not sure if this qualifies but we have often heard that short crops have long tails and I have to suspect that once we have moved beyond this current short inventory situation, we could be faced with a very long tail in the bean market. 



Morning Comments - Little for the Bull to feed on

Jun 03, 2014



Following markets in Asia and Europe, the wheat market is under pressure once again this morning in the US as well.  Weather models appear to be in agreement that we have moist conditions ahead for the major domestic growing regions and ratings stabilized again this week remaining unchanged for the winter crop.  The conditions for spring wheat will not be released for another week but planting progress continued to move forward.  Nationwide it is projected that we now have 88% of the crop planted, which is right on top of the historical norm. 

Export inspections were within trade expectations and basically unchanged from a week ago at 18.9 million bushels.  This brings the year to date tally up to 1.148 billion, leaving us just below the USDA projection of 1.185. 

US values are again right in top of world prices but this time of year buyers may opt to sit on their hands and await new supplies to arrive in the pipeline.  That does not necessarily mean prices need to drift significantly lower than we have already but without a fresh positive story we could just begin to drift sideways/lower as we look for a potential seasonal low.  Look for support to develop in nearby futures in this 6.25/6.00 zone. 


Fundamentals – Nearby corn was able to bounce back to the unchanged level yesterday but the overnight news provided no incentive for the bulls to be encouraged.  First of all planting progress reached up to 95% complete, 1% ahead of the average pace.  North Dakota had another big week planting 19% more, reaching 86% complete vs. the normal 88%.  Minnesota is up to 93% vs. an average of 95% and Wisconsin at 86% vs. 90%.  The two states that still lag the furthest behind are Michigan at 81% vs. 90% and Pennsylvania at 80% vs. 86%.  Nationwide emergence stands at 80%, which is right on top of the historical average.  The first nationwide conditions report of the year reflected a great start with 76% of the crop rated good/excellent.  I am always a little suspect of anyone’s windshield observations but I drove from Northern Illinois to St. Louis yesterday and certainly would not argue with that assessment of the corn crop. 

Export inspections were within trade expectations at 38.4 million but this was really the first time that we fell below the average we need to maintain since the middle of March.  Year to date we have now shipped 1.325 billion bushels and will need to maintain an average pace moving ahead of 44.2 million per week to reach the 1.9 billion target.

Weather models appear to be in general agreement that the next 10 days to 2 weeks will bring moist conditions and normal to even cool temperatures to the majority of the Corn Belt.  Similar to last year, this would mean that the growing corn crop should experience little to no stress as we reach out to the pollination period.  Granted, those are forecasts and certainly do not guarantee a great crop but that sounds like an excellent recipe to potentially make one.

Prices are under pressure again overnight but we have not really extended the break just yet. Support should be good within this old congestion range between 4.67 and 4.55. I continue to believe we could be in line for a reaction low this week but with the current setup, rallies will most likely be corrective and possibly disappointing in size at that. 


Shipping 50% more beans than we need to helped lift the nearby bean market higher again yesterday but the strength could now be carried into todays action.  For the weekending May 29th, we shipped another 5.7 million bushels of beans bringing the year to date total up to 1.5475 billion bushels.  To reach the USDA target of 1.6 billion we need to average 4 million per week for the 13 weeks left in the marketing year.  That was also enough to push the July/November spread into a new high and new high close for the year. 

While that news provided support for the front end of the market, there was little to help out the bulls in new.  Planting progressed increased 19% and as of June 1st stands at 78% complete vs. the normal 70%.  The only states that remained notably behind average were Michigan -9%, Minnesota -5% and Ohio -4%.  There is of course ample time to catch up.  Soybeans emerged came in at 50% compared with the normal 45%.

While old crop beans remain in a world of their own and a big sideways pattern, it would appear that it is becoming increasingly difficult to defend these price levels for new beans.  We continue to hold the existing trading range, which is roughly between 12.50 and 12.00 but I suspect if or maybe better stated, once we have violated the lower end of this, the exit will become crowed rather quickly.

Morning Comments - Dour start to a new month

Jun 02, 2014



The wheat market has begun this new week and month right where we finished the last, pushing into lower lows.  It would appear that we could not buy a friendly story right now and as such bulls continue to head for the exits. 

Black Sea and European markets continue to push lower and even Russian wheat markets have finally turned lower.  With the exception of a few concerns yet about the Volga region in Russia where around 15% of their crop is produced, conditions through the rest of Europe through Russia appear very conducive to producing a exceptional crop.  The are many who now believe that Europe could be looking at record or near record supplies of wheat this year.  That is not only negative to wheat but corn as well as they will likely need fewer bushels from the Black Sea. 

It was reported this morning that exports from Ukraine continue to run significantly above a year ago.  Keep in perspective part of this is due to the availability of grain as they suffered a drought in crop year 2012.  Regardless, so far this year they have shipped a total of 31.387 MMT of grain versus 23 MMT at this time last year. Of this total 8.996 MMT has been wheat.

At the low this morning July futures reached to the top of the gap that was left back on the 3rd of March between 6.16 and 6.10 ½.  I suspect between this mark and 6.00 we should see this down-wave exhaust but at a minimum we need to see prices begin to track sideways before even thinking about a rebound.


With what appears to be a near ideal weather outlook, the corn market extended into lower lows as we begin the month of June.  As I have commented in previous letters, this is often the time of year when the trade shifts focus from demand to supply and right now the outlook for an increasing supply look promising.  The trade is anticipating to see decent planting progress reported this afternoon in the areas that have been behind and overall somewhere between 90 and 95% complete.  If correct this would keep us right on top of historical norms.  The first crop conditions report should be issued this afternoon as well and should reflect a very good start to the season, possibly a 70% good/excellent rating.

As I commented under wheat, the exports from Ukraine this year have been outpacing the drought stricken numbers from the 2012 crop.  To date this year out of the 31.387 MMT shipped, 19.71 MMT has been corn while last year to date they had shipped 23 MMT of ALL grains.

With frequent showers and seasonal temperatures in the forecast the corn bull does not have much to bolster his position at this point.  That said, we have now reached down to a support level that was developed back in February between 4.68 and 4.55 and needless to say, sit in a very oversold position.  With the entire summer yet ahead, we may have the boat listing just a bit too far to the bear side and a corrective rebound should be in order soon.  It is not unusual to see reaction lows and highs posted during the first week of a month. 


Even the soybean market has begun the month under pressure but realistically the damage is insignificant.  We are seeing a little shift in spreads in the complex, as oil is stable, which could partially be influenced by the bio-diesel production numbers, which reflected a 22 million gallon boost over February.  And this in face of the loss of the blender’s credit.  That said, I suspect the majority is related to nothing more than unwinding. 

The trade is expecting to see the nationwide planting progress to reflect 75 to 80% complete and should keep it ahead of the norm for this time of year.  There continues to be discussion that we will see additional bean acres in the northern states, which would seem reasonable but I suspect any shift could have been offset by additional corn that may have been planted in the center of the Corn Belt.   The final acreage number will be released on June 30th

Realistically there is nothing new here in the soybean news but even with the pressure that we have seen this morning, both old and new crop months remain well entrenched within the existing range.  For nearby that is between 15.30/.35 and 14.60/.55 and for November roughly 12.50 and 12.10.  There is a possibility that we could remain trapped within these levels through the balance of this month but as I outlined in the weekly newsletter, the longer term indicators would suggest that the eventual breakout will be lower but that is not to say the bears will not be battered around several times before that occurs.


Weekend Commentary

Jun 01, 2014


I had the opportunity the past week to attend a presentation of sorts featuring two former Secretaries of the Treasury, Hank Paulson and Tim Geithner.  Both of these men were very instrumental players during the meltdown in 2008 and each have written books outlining their account of the event, the most recently published "Stress Test" by Mr. Geithner.  As you might suspect the event is really a promotional tour for this book, but is staged as a conversation between the two men with Mr. Paulson asking and Mr. Geithner fielding questions, which is actually very effective even when you know they have done it several times before.  Prior to the start of the program I struck up a conversation with an individual from one of the larger investment companies and we began to reminisce about that period in late 2008. Needless to say, they were not fond memories.  One of the most striking things that I remember from that fateful period was just how few people actually recognized just how close we came to a complete and utter financial meltdown.  Maybe that is for the best as it may have tempered what could have been an all out public panic. But I believe the really unfortunate aspect of it was that there were a number of politicians who were also unaware of the circumstance at the time, or worse were aware and chose to play partisan politics rather than working jointly to stem what was the brink of financial Armageddon.

Both former secretaries began the evening’s conversation by saying that reliving this period, first and foremost, brought back a flood of unpleasant memories and experiences.  Not only because of the financial situation itself and the resulting aftermath of the "Great Recession", but also pertaining to the sorry state of the political situation in Washington and the areas they feel could have been dealt with more effectively.  This is not meant to sound cynical on my part, but I have written numerous times before that economic theory is just that, theory. Those who would like to tell you they possess all the answers to the problems and that their "theory" is THE only correct one for any and all circumstances are full of BS.  This is particularly true when they are sitting on the outside looking in with limited amounts of information and no risk because in their decisions, just like the proverbial "arm chair quarterback." This was somewhat reinforced by a comment secretary Geithner made that they were presented with a situation in which there were no good choices, and most of them untested at that. They had to search for what could be the least bad. 

It is worth going through a mini-refresher on how things unfolded back in 2008 and into 2009.  While the real estate, and by extension the mortgage industry problems started going downhill in 2007, it seems that one of the original defining moments of the collapse began in March of 2008 when one of the pioneers in mortgage backed securities, Bear Stearns, was on the verge of collapse. With the assistance of the New York Federal Reserve and its then President Timothy Geithner, there was a last minute deal put together for the firm to be purchased by JP Morgan.  Many decried the deal as a fire sale, but realistically, that was just a little smoke before the real fires ignited.  It was really nine months later when the Federal Government had to step in and take over the disastrous mess that was (is) Freddie Mac and Fannie Mae, and soon there after the investment house Lehman Brothers found themselves in a similar situation to Bear Stearns. There were many who were under the false assumption that the Treasury Department and the Fed would do something to keep them afloat, and while it is correct that they tried, they were ultimately unsuccessful at brokering a deal with Barclays. Once the financial industry realized the government was not going to step in and take over, the you-know-what really hit the fan.  Things began to unfold in a very rapid succession from there, as the day after Lehman filed bankruptcy, the oldest money market fund "broke the buck" trading down to 97 cents triggering what was in essence a run on money market funds.  From there, the commercial paper market, which was a major funding source for businesses, began to dry up. This was the point I very distinctly remember it appeared that the entire financial system appeared to be going into seizure. This was ultimately stemmed only through the intervention of the government pumping assets into the system and eventually led to the passage of TARP, the Troubled Asset Relief Program.  Of course that was no easy task either and failed on the first vote in Congress, sending markets into another tailspin.   While I may remember this as a difficult time for the financial markets, I can only imagine what people like Hank Paulson, Tim Geithner and Ben Bernanke were going through at the time.  Regardless, on October 8th, 2008 then President George Bush signed TARP into law and the industry took a collective sigh of relief. 

While only $431 billion of the $700 billion in TARP funds was ever used, through the combination of TARP, the auto industry bailout, Freddie & Fannie, AIG, etc., etc., the Federal Government eventually spent $611.2 billion dollars in an effort to stabilize the system[1].  To date, $387 billion dollars of this money has been actually paid back, but when you add in revenues generated and profit from sales, the government has received back a total of $641.8 billion, which equates to around a 5% return.  I do not point this out because I believe the government should be in the business of saving every industry that gets itself into trouble, but because "desperate times call for desperate measures". And that was as close to desperate as I believe any of us want to move.  In the aftermath, we are lugging a lot of unwanted baggage around that we will probably not shed for sometime, but I am in the camp that believe the remedy will have been far less painful overtime than was the disease that could have crushed us. 

So why should we revisit this difficult period in recent history?  First, now that we are nearly six years removed, we can look at what went wrong and what went right.  While I suspect there are others, when asked what they regret moving back, the former secretaries listed not bailing out Lehman, allowing Dodd Frank to be polluted with unwise provisions and that Freddie and Fannie still need significant reforming.  Regardless, I believe that we were fortunate to have individuals such as this in positions that worked for unique solutions to address unique problems which they had inherited.  I read a quote that would seem to sum this up the best; it basically said to blame either of these men for the problems at the time would be akin to being mad at your surgeon for removing your liver because you drank too much.  They made the tough choice for the circumstances and fortunately the patient was able to pull through.  The more important reason to look back at this situation is as a reminder of the circumstances that led us to that position. Collectively, we tend to have relatively short memories and when the financial industry, who is ever seeking greater yields, begins experimenting with "creative" investments, which seems to be the case once again, we need to have them jogged a bit.  I for one, don’t want to ever have to encounter another least-bad situation like that again.

[1] https://projects.propublica.org/bailout/

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