Oct 2, 2014
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July 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 - A sour month of trade

Jul 31, 2014




We are on the cusp of finishing another month and for the wheat market it has been a continuation of a downtrend that began in early May.  From that spring high, spot futures have lost right at 30% or $2.20 ¼ into the July low and December futures are down nearly the same percentage at 29.12% or $2.22 ¾.  While it may not seem like it, this market has actually been tracking sideway now since mid-month, which would seem to indicate that we have factored in much of the bearish fundamentals but of course, we have found nothing to date that would force the bear from the stronghold. 

Domestically, yields have continued to improve as the harvest has moved north and as I have commented previously, yield estimates for the spring crop sound solid.  Europe continues to suffer from an overabundance of moisture hurting quality and slowing the harvest but the most recent forecast call for a drying pattern.  Russian has been the bigger news as crop projections there have continued to rise. Australia continues to lean to the drier side but ideas of a more moderate El Nino have brightened prospects.  

The Black Sea remains the dominant completion in the export trade as they once again filled Egyptian business but US exports sales for the latest week were very solid.  We sold a total of 801,000 MT or 29.4 million bushels, versus trade expectations of 13 to 20 million.  The top purchasers were Nigeria at 167k MT, Panama at 128.5k MT and Brazil at 116.1k.  Basic economics would appear to be at work once again.

While there is little to find that appears encouraging in the wheat market right now, particularly with corn and beans with ongoing pressure, but as I pointed out previously this market has really been tracking in more of a sideways pattern now for the past few weeks in spite of it.  The old rule of thumb is that when a market quits responding to news, you should be close to the end of a run.  It remains difficult to envision much of a turnaround at this time but at least for now, the bears’ appetite appears to be mostly satisfied.


The percentage losses for December corn since the spring highs are basically identical to those in wheat, as at the low posted a week ago today we have lost 29.24% or $1.50 ½.  For that total, 54% of the break has occurred since the June 30th grain stocks and acreage report.  We are seeing a little bit of a sideways pattern in this market as well, but unlike wheat by no means would I suggest that have absorbed all the bearish news at this time.

Just about every August weather forecast that I have seen continues to paint a picture of cool an moist conditions and while that could begin raising concerns about growing degree days and the crop maturing on time, I believe that would be a tough sell to attract buyers with.  It would not be unusual to see futures move into more of a sideways pattern during August as we wait for the report and allow technical indicators to correct but that would not necessarily translate into much in the way of a rally. 

As expected new crop export sales were solid as we sold over a million tonnes but old crop sales are drifting lower.  For the 13/14 marketing year we sold 173,900 MT or a measly 6.85 million bushels.  We have now sold 14 million bushels more than the 1.9 billion projected to actually get that quantity out of the country looks questionable.  For the 14/15 marketing year we sold 1.093 MMT or 43 million bushels.  The major purchasers were Mexico at 431.5k MT, unknown destinations at 277.2k MT and Columbia at 129k MT. 

The continued bright spot for corn is ethanol, which is no surprise with the profitable margins they continue to enjoy.  For the week ending July 25th, the industry produced 280,476,000 gallons using approximately 100.9 million bushels of corn.  I would not be surprised to see the USDA bump the usage number up another 25 million on the August report. The only cautionary note was that the ethanol inventory increased by 27 million gallons and with the travel season waning, we could see this begin to grow more.  Of course the declining DDG market needs to be watched closely as well. 

I do not want to become overly encouraged with the mini-sideways pattern in corn as we need only look at the recent action in cotton or the corn market at the end of June to see that we can break lower from a sideways pattern.  That said, for now, it would appear that the remaining bulls, which appear to be the managed funds, are not ready to surrender and there could be a few shorts that may want to take some money off the table before the report.


As a percentage of price, the break down in beans has not been as severe as in the grains, but from the spring highs, November futures have lost 17.51% or $2.24 and from the late June high, 15.35% or $1.91 ¼.  Of course beans make up in sheer dollars what they lack in percentage moves. 

Realistically, this market has moved into a sideways congestion pattern for the better part of the past month, evidently supported by the uncertainty of the August weather and ultimate yield potential and very solid new crop export business.  While none of us knows what the cool moist forecast currently offered up for August will produce in bean yields, the 84.8 million acres planted offer us somewhat of a buffer as we wait to find out.

As far as the sales for the past week, while not a surprise, we did sell a very solid 1.2687 MMT or 46.6 million bushels which was even above the upper trade estimates.  Of this total, China purchased 60.6% of them.  While basically a moot point, old crop sales were 187,400 MT or 6.9 million bushels.  For the record, this moves us to 71 million bushels above the USDA estimate of 1.62 billion but it looks very doubtful that we will ship that number and may not even reach 1.60.

The bean market should continue to maintain its risk premium for another couple weeks as we reach out to the August 12th report but I suspect we will remain within the existing 11.15 to 10.65 range during that time frame.  At the outside we could see a shot at the gap up around 11.30.  All that said, if the bull has not found reinforcements soon, I would expect to see a dip down against the 10 level into harvest.


Morning Comment - Midweek Blahs

Jul 30, 2014




It would appear that the bear is not quite finished in the wheat market as the breakdown yesterday pushed us into slightly lower lows for the year.  Prices have stabilized overnight and I do not feel this is the beginnings of a new wave lower but is indicative of just how difficult it is to put the brakes on a train moving downhill.

While the negative sentiment in corn and to a lesser extent beans are dragging on the wheat trade, the fact that we are contending with a large world harvest and a discounted Black Sea market continues to hang around the neck of this market like a weight.  The fact that the Russian Ruble has broken at least 5% over the past couple weeks has not helped the situation either.  The USDA attaché in Russia projects a total grain crop in that country of 94 MMT of which he estimates 52 MMT will be wheat.  Interesting to note that the current USDA estimate is 53 MMT and there are some in the trade who estimate the wheat crop could be as high as 60 MMT.  Wet weather continues to hamper harvest in Europe but that should be more of a quality issue. 

I continue to believe we should be rounding out a reaction low in the wheat market as we slide into early August but will need to be patient before expecting any kind of corrective bounce.   


While the corn market did not push into lower lows, we did witness a classic Tuesday undo day yesterday and have continued to struggle overnight. This is by no means a stunning or particularly insightful statement but at this point it is all about the weather and by extension supply.  Demand, while discussed to not really play in the psychology of the market this time of year particularly when there is no threat to the crop.

The weather outlook into August continues to look ideal for corn development.  Temperatures are forecast to remain normal to below normal with reasonable chances of moisture across a wide swath of the Midwest.  During my travels over the past 5 days or so, I heard time and again that all that was needed to finish this crop was another couple decent rains and a normal frost date.  The rains appear to be in the forecast and on the latest update from Drew Lerner at World Weather, he comments that there does not appear to be anything this year to suggest an early frost. 

We will see the weekly EIA ethanol number once again this morning and should continue to look positive.  One side note is that DDG’s continue under pressure with China out of our market, which should continue to be a drag on corn and meal demand and ultimately could squeeze margins for the grind. 

The corn market has been relatively stable for the past few weeks and traders may be reluctant to push the downside much more before the August report.  That said, considering the lack of crop threats and the fact that the wheat market can continue to extend into lower lows with a better handle on the overall crop size, it does not provide for much of an encouraging picture in the corn market particularly with managed funds still holding a long position.


The rally on Monday of this week told us that the bean market is still prepared to maintain a little risk premium as we move into August but the failure yesterday also told us there is a limit to how much that will be without more of a hint of a weather issue.  After testing the Ukraine air disaster high of two weeks ago, prices reversed lower and have been under pressure once again overnight. 

The active interest in the new export demand has continued to provide support but the most recent updates for August weather have provided the counterbalance.  If correct, we should have rains falling across a wide portion of the Midwestern growing region over the first couple weeks of August and no excessive heat.  By no means does that assure big bean yields but it would not appear that the plants will be stressed either. 

November futures appear to have settled into a trading range between 11.15/11.20 and 10.65/10.55 and we could chop back and forth between those parameter at least into the reports on the 12th.  The USDA should now be beginning to collect data for the report but this figure will be basically statistical and I would not imagine they would make much if any adjustments in the bean yield.  That said, if we have moved out to that time and still not found any threat in the weather forecast, I believe this contract will be headed for at least the 10.00 level.

Morning Comments - Bears are a little anxious

Jul 29, 2014




The wheat market wanted to join in the bean rally party yesterday, but they were just too shy to remain out on the dance floor.  While not an untypical pattern for this market, early strength faded and we finished lower.  I have commented that we should now have factored in a large portion of the supply news in this commodity but it would appear that we need a little input from the demand side if we are to jump-start a corrective rally. 

Exports are not providing any stimuli.  For the week ending July 24th we shipped 14.4 million bushels, which was down around the low side of trade estimates.  This brings the marketing year to date tally up to 133.89 million bushels compared with 188 million a year ago.  To reach the projected 900 million this year we will need to bump the average up to 17.4 million per week.

Not helping matters are the expectations for a larger Russian crop and the declining prices in the Black Sea market.  Some feel that exports from that country could push as high as 6 MMT. 

Domestically, the crop conditions report reflected unchanged conditions for spring wheat at 70% good/excellent.  This compares with 67% a year ago with 93% of the crop headed.  Harvest for the winter crop has reached 83% versus and average for this date of 80%.

Even though we do not have enough interest to rally wheat just yet, we at least remain in a sideways pattern and for grain markets that would be a typical bottoming pattern. Managed funds are already short in this market and without additional follow-through lower, they could soon grow impatient.  I would not be surprised to see prices struggle through the balance of the week and if correct, we should be in line for a corrective rebound in early August.  


The corn market did a little better job of holding gains than did wheat yesterday and December futures were just able to fill the gap left on the previous Monday.  There were a few attributing the dryer conditions we have seen across the Midwest for the past 10 days for the rally and I guess after nearly a 19% loss over the past 18 trading days, it would not take much to spoke a few of the shorts.  To make that extend very far will be the greater challenge. 

While it is true that we still need moisture to fill out ears, we should have ample sub soil reserves to tap into, particularly seeing that we have no heat stress sapping the plants.  We did see crop conditions slip 1% in the good/excellent category this past week to 75% but that should really come as now surprise as this is normal post pollination.  Last year at this time we stood at 63%.  78% of the crop is silking compared with 75% normally and 17% of the plants have reached the dough stage versus a normal 16%. 

Export inspections were disappointing as we shipped just 31.7 million bushels.  With only 5 weeks left in the marketing year, we have moved 1.646 billion bushels and to reach the USDA target of 1.62 billion, we need to step the average up to 50.7 million per week.

While it is still a little premature to call for a turn-around, the corn market does have the appearance of trying to round out a low.  It was so fractional that I am not sure it is worth mentioning but with that ¼ cent push through last weeks highs yesterday, it was the first that had been accomplished since late June.  That said, you have to start somewhere.  Another few days of sideways action with a dip back down against the lows could have us poised then for an early August bounce. 


It was realistically all about the beans yesterday as China continues to be a solid buyer for the new marketing year, purchasing another 18 mil. bu., and the key August weather just around the corner.  Add in that the managed funds are short and you have a recipe for short-covering bounces like yesterday. 

The forecasts for August are by no means alarming but do remain cooler than normal but of course that does not preclude sunshine.  The weekly crop rating dropped 2% from the previous week and stands at 71% good/excellent.  Hardly what you would call alarming.  Beans blooming has risen to 76% versus an average of 72% and setting pods at 38% compared with the normal 31%. 

If nothing else, the weekly bean export inspections are consistent.  For the week ending July 24th we shipped 4.2 million bushels, which is right on top of the 10-week average.  Year to date we have now moved 1.581 billion bushels but to actually meet the USDA target of 1.62 billion, we will need to average 7.8 million per week.  While if we missed the target by 20 million bushels, that does not represent much of a 1.62 billion goal but that would still be a 14% boost in ending stocks and would potentially add to a growing supply for next year.

With the strength yesterday and overnight, November beans have poked through last week’s highs but not the Ukraine air disaster inspired highs of two weeks ago.  There is no question that this market carries the most uncertainty moving forward but I suspect the headwinds will become quite stiff as we approach the 11.30 + level without actual issues with the crop.

Morning Comments - Finally a stable start to a week

Jul 28, 2014




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

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

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

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

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


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

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

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


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

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


Weekend Commentary - A Look Forward Part I

Jul 27, 2014



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

Part I

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

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

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

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

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

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

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

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

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


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


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


Morning Comments - Bad news keeps rolling in

Jul 25, 2014




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

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

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


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

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

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


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

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

Morning Comments - A rising tide lifts all boats

Jul 24, 2014




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

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

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

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


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

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

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

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

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


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

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

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

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


Morning Comments - Exasperation in the beans

Jul 23, 2014




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

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

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

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


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

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

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

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

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


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

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

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

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

Morning Comments - Uninspired bounce

Jul 22, 2014




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

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

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


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

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

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

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


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

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

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

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



Morning Comments - Home on the Range

Jul 21, 2014




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

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

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


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

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

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

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


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

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

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


Weekend Commentary - Global Demand Perspective

Jul 19, 2014



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

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

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

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

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

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

[1] USDA

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


Morning Comments - Risk off for the weekend

Jul 18, 2014




Markets appear to have settled down after the extremely unfortunate disaster yesterday with the Malaysian plane in Ukraine.  While it is yet to be determined who fired the missile that that took down this plane, at a minimum we are confronting additional tension and risk and as such, markets will be unsettled. 

Looking out to next week, forecasts still call for a temporary warm-up in temperatures early but then by the end of the week back to more normal conditions with additional rains.  Russia did report overnight that due to the slow start to their harvest this year their total grain stocks stand at 11.1 MMT, which is down 12.8% from a year ago.  The overall wheat harvest is only 15% complete. 

Wheat values are lower in the morning trade, and we have nearly removed the "uncertainty risk" bounce from yesterday.  That said, with the weekend upon us I suspect, outside of hedge business, many will move to the sidelines and await development over the next few days.


The corn market was basically tugged around by wheat yesterday but ultimately gained little for the close.  As such, we really had little to surrender this morning either.  This market has moved into a fairly flat pattern now for the past week and currently sits just a smidge higher than we did on the close last Friday.  Evidently, we have factored in the negative news delivered at that time, which stands to reason as the corn numbers were really right around trade expectations anyway. 

While the general trade opinion seems to be calling for higher yields and production, there is still enough uncertainty with weather and a pick up in demand to stabilize values for the time being.  Of course the disaster yesterday just compounded the uncertainty.  While these factors may not be enough to force a rally just yet, they have at least given the bear reason to pause.  Keep in perspective that market corrections can also be accomplished with sideways action and unless we are presented with information next week that will actually force the bear from positions, the could very well just turn out to the resting point before we extend into lower lows once again. 


The bean market was also caught up in the uncertainly yesterday and extended their rebound but that turned out to be quite temporary and prices reversed lower into the close.  We have seen a little two-sided action overnight but as with the other commodities, I suspect other than hedge business there will not be many interested in taking on new risk in front of the weekend.

Beans are the one commodity with actual news this morning as the Chinese continue with a buying spree for new beans.  The USDA announced this morning that we sold an additional 116,000 MT to China overnight and 464,000 MT to unknown destinations. 

This market has taken reports of record acreage that was delivered a week ago today and actually worked higher ever since.  Granted the strong and consistent buying by the Chinese for the past week has provided a dose of demand support but could it be that until we have moved out through the critical August development period that the bulls will not completely surrender?  From a technical standpoint, the very short-term indicators are overbought but intermediate numbers are showing we could be poised for a rebound.  If we can hold stable for the first few days of next week, it would appear we could be set for just such a bounce. 


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

Jul 17, 2014




Although the gains were incremental the wheat market was able to close higher for a 3rd day in a row yesterday but that must have exhausted the would be bulls as prices pulled back a touch overnight.  We have stabilized again during the day trade but there is really not much positive news around so other than the oversold position of the market there was not much to sustain the strength just yet.

Rain coverage continues to increase across India, which of course should benefit all the crops they produce and lessens one factor that may have been a touch supportive.  Strategie Grain released updated estimates for European production and have boosted the wheat crop 660k MT, projecting a total crop of 147.7 MMT.  This is pushing 5 MMT above last year but they did note problems with quality in a number of countries.      

Many were expecting to see a nice boost in exports sales for all commodities this week with the lower prices but it would appear, would be buyers are not becoming overly anxious in wheat just yet.  For the week ending July 10th we sold 320,700 MT or 11.78 million bushels of wheat.  This was a little over 5% down from last week and compares with the trade estimates of 15 to 20 million bushels. 

I believe there still remains a possibility to experience a short covering bounce in the near term in wheat but with harvest progressing nicely across the Northern Hemisphere and any production issues already factored into the current price structure, headwinds will be stiff.


The last time December corn was able to gain a nickel or more in a single day was back on the 19th of June and while it was nice to see such a feat accomplished yesterday, it really accomplished little.  We did not even close above the previous days highs, which is actually something we have not been able to do since the reports at the end of June.

The latest weather runs remove the heat for next week from the outlook pretty rapidly and throw in a few showers for good measure, so if that were really a fuel for the buying, that flicker has been doused.  Realistically, it seemed a stretch to think we were in store for any extended heat with the pattern we have witnessed this year and the trade can go back to outguessing each other as to how big the production might be this year.  Strategie Grain also boosted the estimate for EU corn production, which they now expect to be 66.4 MMT compared with their previous estimate of 65.9 MMT. 

As I commented previously, the trade was looking for a pickup in export sales with the continued drop in prices and we did witness a nice bump this week.  For the 2013/14 crop year we sold 573,700 MT or 22.59 million bushels versus estimates between 10 and 14 million.  This was an increase of 58% over a week ago with major buyers of Japan at 246.9k MT, Columbia at 94.3k and Taiwan at 42.9k.  For the 2014/15 crop we sold 459,000 MT or 18.07 million bushels, which was just above the upper end of estimates and 20% above a year ago.  Time and again, the best cure for low prices is low prices. 

Ethanol continues to be a stellar performer this year as for the week ending July 11th we produced another 943 million gallons using approximately 99.7 million bushels of corn.  Additionally, stocks decreased 14 million gallons for the week.  I just returned from the annual Kansas City Federal Reserve Ag Symposium and if there were a bright spot from any of the topics it was concerning the production of ethanol.  One of the speakers was from a privately traded ethanol company and naturally you would expect him to have been positive for the outlook of his firm. That said, he pointed out that even though we have pushed against the blend wall in this country, increases in the world price of sugar and the continued high price of crude along the break in corn has placed US ethanol in a very competitive position in the export market.  Hard to ague with that reasoning at least with the current values. 

After struggling a bit overnight, we do have prices a into the green this morning but with the overall picture right now, it is difficult to look for much more that short-covering bounces for the foreseeable future.


November beans provided us with the first really definable rally since the end of June yesterday with a close up through the highs of the previous three sessions.  Prices did cool off overnight but have moved back into the plus column now in the day session.

I find is slightly curious that one of the reasons cited for the strength yesterday in beans was the forecast for warmer temperatures next week.  Unless we have developed a new strain of beans that I am not familiar with, I have always understood that beans need heat and sunshine as we move into the late July through August period. It would appear to me that with the ample moisture that we have, a warm sunny stretch would be just what the doctor ordered for the crop.  I would be more concerned if we do not see that happen over the next 30-days as we could end up with great looking bushy plants with nothing in the pods. 

No surprises in the old crop bean sales as we sold 37,700 MT or 1.385 million bushels.  This was down 33% from the prior week.  We did see an uptick in the 2014/15 sales but they were well within the range of estimates at 561,000 MT or 20.62 million bushels.  This was an increase of 6.5% over the prior week.  Of this quantity China purchased 365,000 MT and unknown destinations 149,500.  There are persistent stories that China is still actively seeking to purchase new beans.

As I commented initially after struggling overnight, beans have pushed into higher ground again and I continue to believe we have room for additional short-covering strength from here.  November futures should have room to push back against the gap levels at 11.30 but I suspect would need some kind of weather concern to move beyond there. 


Morning Comments - Could the bear be getting anxious

Jul 16, 2014




Don’t look now, but the wheat market is actually beginning to appear that we have run out of sellers.  After closing higher on Monday, prices were able to bounce back into the close in Chicago yesterday and we have strength again overnight. Granted, this is by no means enough to try and confirm a reversal just yet but after a 47 day slide of almost $2.20 cents in December futures, you would have to suspect that a few shorts may be at the point of wanting to pull some money from the table. 

News is once again light this morning.  As expected yield reports have improved as the US harvest has moved north with some exceptional reports being heard out of Western Nebraska and Eastern Colorado.  Russia reports that their harvest is now just over 30% complete and additional rains have been falling in India.  Certainly none of this news would seem to back up the little strength that we are seeing, which would suggest it is mostly technical.

We have not turned indicators up out of the oversold zone yet but we are trying.  I continue to believe we should have room to at least push December Chicago futures back against the old lows between 5.68 and 5.78 to an extreme of 5.90/5.95 but to move beyond there I suspect would require some type of news to really scare the bear. 


After yesterday, December corn had posted eleven days in a row of lower highs and lower lows and since the June 30th stocks and acreage reports has surrendered almost 70 cents. While there is little in the fundamental outlook that would hold much promise for this bleeding to be stopped, when you push markets into oversold positions like this, never discount the possibility for a corrective bounce.  While funds still have longs that could be choked up, when the overall psychology becomes this negative and the boat is listing heavily to one side, it would not take much to try and right it again.  As I have commented many times, when everyone is thinking the same way, no one seems to be thinking anymore.

It is interesting to note that one of the reasons given for the market coming away from the lows yesterday was due to the forecast for a return to normal to above normal temperatures next week.  While there will be quite a bit of corn tasseling during that period, it would not appear that the forecast is calling for any extended period of stress and realistically, this crop could use a little heat particularly after this week’s abnormally cool temperatures.  I am in Kansas City this week for the annual KC Fed Ag Symposium. It is generally uncomfortably hot and humid during the event, but almost everyone here is commenting on how pleasant the conditions are.  I have had the opportunity to speak with a number of people from the west side of the Corn Belt and as you might imagine, outside of an isolated area here and there, reports are of potential for record crops.

Prices have been able to snap a little higher in the overnight trade and if we can close higher it will be only the second time since the 27th of June.  If we hold the existing range it will also be the first higher low during that same period as well.  I am not ready to hold my breath just yet but from a purely technical standpoint, we should be more than ready for a correction but keep in perspective that resistance will be stiff all the way back to the breakaway at 4.10 in December futures. 


November bean did manage to hold on for a higher close yesterday, which is only the second time we have accomplished that since the 26th of June.  As with wheat and corn, there would appear to be little in the fundamental news to encourage a rally but from a technical standpoint, once you pushed into oversold conditions such as this, a rebound is possible at any time. 

We did not find much encouragement from the crush figures yesterday as during June we crushed 118.72 million bushels.  Depending who you listened to the trade was expecting anywhere from 119.5 to 121 million bushels be regardless we were under all of them.  We should continue to see this number work lower each month through the balance of the crop year.

I have to believe that if the weather forecast is correct with heat and sunshine moving in, it would be just what beans need at this point.  Regardless, when you push markets into this oversold a position sometimes all you need is an excuse for a rally not a real reason.  If that turns out to be the case, look for stiff resistance in November futures all the way back to the gap at 11.30.  

Morning Comments - Little to scare the bear this morning

Jul 15, 2014




We finally broke the streak as wheat corn and beans all closed higher yesterday but alas, there was no carry-through overnight and Tuesday’s trade so far is back in the negative column.  Overnight news is very sparse so we are back to trading an expanding wheat harvest and thoughts of larger yields in corn and beans. 

We harvested another 12% of the winter wheat crop, which stands at 69% complete.  The average for this date is 68% and last year we had completed 66%. Spring wheat ratings were unchanged at 70% good/excellent with 69% of the crop headed, which is 1% above average. 

Export inspections were sluggish as we shipped only 13.9 million bushels last week, down almost 20% from the prior week.  Granted, it is still relatively early in the year but so far we have only shipped a total of 99.1 million bushels and now need to step the average up to 18.5 million per week to reach the USDA target of 950 million.

The overnight pressure is not enough to label the rally yesterday, as a one-day wonder and realistically a quick 2 to 3 day rally would probably be quite limited.  A few days of choppy range development could actually provide us with room then for a week or two of corrective rebound.  Either way, it would appear that rallies will face considerable headwind and I doubt we have seen the lows established just yet. 


Corn did manage to close in the plus column yesterday but understandably was the least enthusiastic.  By no means have we erased all the gains overnight but with the news at hand, we have never been in the positive column either. 

It was a little surprising to wake up this morning and feel quite this much chill in the air, the corn market is still suffering little to no stress as we move through pollination.  Soon I suspect that topic will turn to lack of growing degree days and without a change here soon, producers better try lock in enough gas for drying this fall.  It was almost a touch surprising but the corn ratings actually bumped up 1% in the good/excellent category and now stand at 76%.  Silking reached 34%, which is 1% ahead of the 5-year average and more than double the 15% last year at this date.

Export inspections came in towards the lower end of estimates at 36.5 million bushels.  This was down over 25% from last week and was the second lowest weekly loading since early March.  Year to date we have shipped 1.577 billion bushels and need to step the pace up to 46.2 million per week to reach the 1.9 billion bushels target. 

There remains a possibility that with the extreme oversold position of the market right now that we could be into a little congestion phase,  but I suspect rallies will remain short-lived as there are more than enough willing sellers waiting in the wings for the foreseeable future. 


November beans did bounce fairly nicely yesterday, partially due to an oversold condition but also partially influenced by good Chinese purchases of new beans.  As with corn and wheat, the overall reports yesterday afternoon provided nothing to sustain the strength and we have been soft overnight but well contained within yesterday’s ranges. 

The crop rating reflected no change in the good/excellent category, which stands at 72%.  A year ago at this time this category was 65%.  Note that the poor/very poor group was up 1% and stands at 6%.  41% of the crop is now blooming which is 4% above the average and 17% ahead of a year ago.

Export inspections came through bit better than the past 3 weeks and above the trade expectations with a number of 4.2 million bushels.  This brings the year to date tally up to 1.573 billion bushels but to reach the target of 1.62 billion, we will need to average 6.7 million per week for the next 7 weeks. 

The bean crop still has the most risk in front of it and as such, should have the best potential for short-covering bounce.  That said, most extended weather forecasts look pretty benign at this point and with the market psychology negative, we would need something unexpected to scare the bear. 

Morning Comments - No threats on the horizon

Jul 14, 2014



The wheat market is looking at minor short covering bounce as we begin this new week in what appears to be featureless trade with a lack of news.  July futures expire today.

Rain coverage did begin to increase in India over the weekend but the far northwestern reaches of the country were still on the short side.  Regardless, this should allow farmers an opportunity to begin making planting progress. 

Harvest is kicking into gear across the Northern Hemisphere and over the weekend Ukraine reported that they had harvested 6.1 MMT so far.  It is expected that the US winter harvest will reflect 70% complete on the report this afternoon and France reports 2% of its crop has been harvested.  Speaking of Ukraine, there is a little tension building between that nation and Russia once again but I cannot say that is much of a market influence at this time.  The only thing that is surprising is that it took this long for additional problems to pop up. 

While no surprise, funds added to their net short positions last week.

With the markets sitting in a very oversold position we can experience short-covering bounces at any time but I see nothing on the horizon at this point that would stimulate an extended move. 


With the exception of the expiring July contract the corn market has extended into slightly lower lows again in the overnight trade in what appears to be fairly light trade.  Over the weekend rains swept across the plains and Midwestern states, which at this point would at best replenish sub soil levels.  Weather this week looks to be cooler than normal with a return to normal next week, which could hardly be better for pollination.  I suspect yield ideas continue to grow in traders minds and pretty much everyone discounted the government figure of 165.3 last Friday the moment it was released, even though that is still a record yield.

It is interesting to note that even though funds were heavy sellers on Friday they had actually increased their longs on the COT report.  It is difficult to think of why they would want to maintain any longs at this time and this should hang over the market on any rally.  I did read an interesting comment this morning that was pointing out the increasing open interest in out of the money call options.  The author was interpreting that as a sign that a low was near and while he could very well be correct, it could just as well be shorts in futures protecting profits and was a lower risk approach to protect against a bullish surprise in the report.  As we now know, that was not to be the case. 

We should see very little change in the weekly updates this afternoon and with the current weather outlook, it is difficult to envision anything more that short blips higher for the time being. 


The bean market has seen the best bounce here as we begin this week but even then the strength has amounted to little.  Before the washout on Friday, the calendar year low for November futures was 10.88 ¼ and so far this morning we have not even quite been able to reach back to that level.  Note that the Commitments of Traders reports showed that managed funds sold over 20,000 contracts last week and are most likely short at this point. 

The June NOPA crush number will be released tomorrow and could be mildly supportive as the trade is excepting to see a number around 120 million bushels.  As with corn, crop ratings this afternoon should reflect little change. 

As we know it will yet be the August weather that will ultimately determine the size of this bean crop.  The longer-range forecasts look non-threatening but we are going to need to see heat and sunshine as we move into next month, which are conditions that have been sparse so far this year.  Regardless, with the negative overall psychology of the marketplace, I have to imagine that rallies will be rather short-lived when they occur.


Weekend Commentary - Fed Moves ahead

Jul 13, 2014


Ever since the United States Federal Reserve embarked on a program of "extraordinary measures to meet extraordinary economic challenges"[1] there has been a debate as to how the economy and by extension markets will react once the artificial stimulus of Fed bond purchases and zero interest rates have ended.  The theory all along has been that we needed these drugs to keep what appeared to have been a terminal patient alive and allow time for it to recuperate.  Once the physicians at the Fed believed that the patient could enter rehab and eventually begin standing on its own, the weaning process could begin but the process would of course be gradual.  Not even counting the TARP bailout, realistically the economy has been propped up by a zero interest rate environment since 2009 and when it became evident that only stabilized the patient, the Quantitative Easing program was rolled out in late September 2012 to try and kick start a recovery. This eventually grew to government bond and mortgage-backed security purchases of $85 billion per month.  Talk about expensive health care! While spending money never assures that a patient will recover we can actually look back over thousands of years of economic history for verification that this kind of program will produce results, but never without side effects but more on that in a different letter.

We did begin the first phase of the weaning process back in January when the Fed initially cut the bond purchases by $10 billion per month and have done so each month since. According to the June FOMC meeting minutes they intend to completely end the QE program with a final purchase of $15 billion in October.  So far so good as with the exception of the negative GDP posted in the first quarter, the economy has limped forward, inflation has remained below target levels and even more important, the unemployment rate has continued to slip lower, reaching 6.1% in June.  It has been generally accepted that interest rates would not see any increase until the unemployment rate dipped below 6.2% and QE tapering was complete. With one of these benchmarks reached and the other in sight, speculation and debate have been increasing as to when that hike might be forthcoming and what the possible impact there may be on the economy and more specifically the daily measure of such that we refer to as equity markets.

Many, including a number of Fed board members have not expected to see interest rates  increase until late 2015 but with the overall improvements seen, a number of more moderate to hawkish members are openly discussing moving this up next year so we may be finding out sooner than later of what the impact will be. 

Realistically, a 25 basis point increase in the Fed Funds rate should have little impact on the overall business environment but psychologically, the effect of such could carry a greater weight than we might expect.  Just think of a few months ago when mortgage rates began to inch higher.  By historical standards, they remained extremely low but the increase quickly hit the refinance market as well as stagnated the recovery in real estate.  Additionally, once we have crossed that threshold, the expectation will be to see higher and higher rates over time, which should produce more uncertainty and ultimately more volatility in markets, which is something we have grown unaccustomed to.  After six years of absolutely flat zero percent interest rates too many have grown to believe this is a rational expectation and have developed business and valuation models or profiles to reflect this as the new norm.  Remember, there was a time that it was generally accepted that the growth in real estate values was just a part of the new economy and as such carried little risk.  Change is almost never pleasant for the unsuspecting and complacent.    

Ms. Yellen will be speaking in front of congress this coming week and you can be assured that market watchers will be hanging on her each and every word looking for any hint of when interest rates could begin moving higher.  I really doubt she will oblige anyone by announcing a date but the handwriting already appears to be on the wall and we should be looking for this to occur anytime after October this year. Once it begins, we shall find out if this patient will be able to walk on it own once again.

Morning Comments - Bulls are waving the white flag

Jul 11, 2014



The early strength yesterday turned out to be rather brief as prices for wheat, corn, and beans all pressed into lower lows for this swing. A pickup in farmer selling of old crop corn was noted so like the large funds, it would appear we have reached the point where the last of the bulls are in surrender and liquidate mode.   I was on with Chip Florey of Market Rally Radio yesterday afternoon and he correctly pointed out that it is never encouraging when the most positive thing that can be said about a market is that it is really oversold.  As we all know, reaching an oversold state should put us all on alert that a rally can occur at any time but you can remain in an oversold position for extended periods. 

I suspect that there are a few longs hoping against hope that the USDA will provide us with some morsel of positive news in the supply demand report today the will stop the hemorrhaging that has pretty well bled out the bull.  While that possibility exists, it would seem pretty remote.  Expectations for yield estimates may be getting a bit ahead of where we stand today but that said, the weather outlook through the balance of the month and the preliminary August forecasts do not appear to provide much in the way of encouragement for anyone looking for a price reversal.

I have pointed out a number of times in the past that according to the long term patterns in the corn market, we have a history of establishing major and often extreme lows two years after the 30-year cycle peak and if consistent this time around it would say that we will accomplish that this year.  The lows established in corn then mark what should be the low side of the major trading range for the next 20 to 25 years.  The positive aspect of this is we should see prices rebound into 2015 but the bad is it would not appear that we have reached the lows as of yet.  As I have pointed out in previous comments, the gap lower this week in corn and beans appear to qualify as measuring gaps which open up the possibility of December corn pushing down to a minimum of 3.75 to an extreme of 3.12 and November beans to the 10.20/9.80 to an extreme of 8.95 levels. While those bottom numbers may not seem realistic, particularly for someone producing corn or beans, keep in perspective that market highs and lows always push to extremes and this could just provide a counter balance to the 8.49 and 17.89 trades posted in August and September 2012 that probably were not realistic levels to have reached to the upside. 

While I do not know with any certainty if we will reach to these extreme of a level, what I do know after over 35 year in this business is that it is not time to panic and begin marketing in desperation.  Every meeting that I have spoken at in the past year I have been impressing on the group that we have moved into a period of realignment in U.S. agriculture and while that may be painful and challenging at times, ultimately it will be those the employ solid and disciplined risk management strategies that will strive in the years ahead.  Expectations may need to be trimmed but marketing on fear and desperation will never be a good plan.

Morning Comments - Bears only want to hear bearish news

Jul 10, 2014




After dipping into lower lows once again yesterday in the grain and soy markets, we are witnessing a minor pre-report bounce here this morning.  I suspect we should be able to sustain the current levels through the reports tomorrow but beyond there remains in question.

While not unusual for this time of year, the only two topics on traders minds right now are weather and the report.  Across the northern hemisphere, the weather outlook for the most part remains benign. As always there are a few trouble spots but the good outweigh the bad by a significant margin.  The one area of real concern continues to be India and forecasts call for rains to move into the northeast region of the country beginning this weekend and if they do, it is believed they can still produce an average crop. If they fail to materialize…

As far as the report, the current estimates are as follows; All wheat production at 1.969 billion, up 270 million from June.  Of this 1.378 billion is winter.  Ending stocks for 2014/15 are expected to be 590 million bushels, which would be up 16 million from the June report. 

Export sales were on the light side this week as we sold 338,100 MT or 12.4 million bushels.  This compares to last week at 20.86 million bushels. The primary purchasers were the Philippines at 107,200 MT, Saudi Arabia at 68,300 MT and


December corn slipped below the 4.00 level yesterday for the first time since July 2010 and even through we have bounced overnight, we remain below that psychological point.  As is typical, when you are in the bear phase of a market, most positive news will be ignored and negative highlighted which was the case yesterday when the University of Illinois released a yield study comparing this years growing condition with other similar years.  The comment that the traders appeared to really key in on was that using the correlative years, a yield as much as 14.1 bushels above trend COULD be possible which according to their figures could be 173.6.  Note that they did say that the June weather in the I states was not consistent with the prior big years and were basically discounting the possibility of that yield being attained.  That said, they still believe we should have above trend line yields and as I commented above, when you are in a bear market the trade will focus on the most bearish aspect of any story. 

Ethanol production came in at the lowest level since the week ending May 23rd at 272,538,000 gallons.  That said, this is still a solid number and should represent around 98 million bushels of corn and it would be a surprise to not see the USDA bump corn usage up at least 25 million bushels tomorrow.  $4 corn and $100 crude oil would appear to bode well for the ethanol industry moving forward.

Export sales bounced up a bit this week with sales for 2013/14 or 363,000 MT or 14.3 million bushels and 381,600 MT of 15 million bushels for 2014/15.  This brings the old crop sales up to 98.6% of the projected 1.9 billion.

The current estimates for tomorrow’s reports are as follows; Yield 166, total production 13.93 billion, 2013/14 ending stocks of 1.233 billion and 2014/15 ending stocks at 1.807 billion.  2013/14 world ending stocks of 169.48 MMT and 2014/15 at 184.53.   


November beans reached down to touch the psychological 11.00 level overnight and have caught a bounce from there but how much longer we can hold above that mark is questionable.  Note that last January we spent around 5 weeks bouncing at this level and did post an extreme lows of 10.88 ¼ at that time, which was the lowest trade for a November contract since October 2010. 

The biggest surprise tomorrow would be to see the USDA make any changes in the yield estimate.  Acreage is a "gimmy" so the production will be higher but as I have commented previously making a yield change I believe would be unprecedented.   If that happened to be the case, I suspect it would the final nail in the bull coffin.  The average trade estimate calls for a yield of 45.1 b/p/a and total production of 3.787 billion.  2013/14 ending stocks are estimated to be 128 million bushels and 14/15 expected to grow to 417 million.  World ending stocks for 2013/14 are expected to be 67.50 MMT growing to an incredible 84.79 MMT for 2014/15. 

Finally, export sales this morning were in line with expectation for old crop as we sold another 56,300 MT or 2.1 million bushels.  This moves us to 104.7% of the projection but is probably a moot point moving forward.  New crop sales were a bit better than expected at 526,500 MT or 19.3 million bushels. 

For now, it is a waiting game until 11:00 CST tomorrow.


Morning Comments - Big crop get bigger

Jul 09, 2014




While it is to a lessor degree in wheat, the pressure continues across the grain and soy markets as bulls can find very little reason to hang around in front of mounting bearish news.  With the overnight pressure, December wheat has just slipped beneath the January 30th contract low at 5.77 ¾.  I pointed out in the technical comments yesterday the last time that a December wheat contract traded below this point was in December 2011 when we reached down to 5.67 ¾. 

There is realistically little fresh news to look at as we work our way out the July 11th supply demand estimates.  As I commented yesterday there remains concern over the monsoons in India but still potential over the next week or so for rain to move north.  In Europe, not unlike the US, the other problem exists in that too much rain appears to be affecting the quality of the wheat but realistically that will just translate into more feed quality wheat.  Harvest is moving forward in Russia with generally good yields and quality reported.  It is estimated that they have cut 6.1 MMT of wheat so far, which is only half of what that had harvested a year ago at this time.  For all grain Russia currently estimates that they will harvest 94 to 99 MMT this year, up from 92.4 MMT last year.  They also expect to export 27 to 30 MMT of this compared with 25.37 million last year. 

I suspect we will chop defensively now through the Friday reports.  The average estimates for wheat are as follows; Total production 1.964 billion bushels, 2014/15 ending stocks at 590 million and world ending stocks of 188.76 MMT.



Even though we closed lower in corn yesterday, it appeared that we were trying to stabilize but selling has resumed again overnight.  This is just out and out long liquidation mode and we will find our low once the last speculative long has been punished enough to exit. 

Weather of course is the dominant topic right now and there is increasing debate as to if the USDA will boost the yields or not for this upcoming report.  While unusual, it is not without precedence and in prior years with similar conditions they have raised the estimate by as much as 3 bushels.  Of course even that would not match the increasing talk of 170+ that is being heard.  The average trade estimate currently is around 166 and with the bearish psychology at this point, it would be safe the say that wherever is comes in at the trade will discount it as being on the light side.  For the other figures the total production is estimated to be 13.93 billion, the 2013/14 carryout at 1.233 billion and 2014/15 around 1.807 billion.  World ending stocks are estimated to come in around 184.47 MMT.

Conab released updated estimates for the Brazilian crops this morning and now expect the total corn harvest to reach 78.2 MMT which is an increase of .3 MMT from last month.  The Brazilians needed a little good news after their crushing defeat at the World Cup yesterday.  This number is actually 4.1% below last year’s production of 81.5 MMT.

Speculative funds have been steadily liquidating their long positions in corn but still have a way to go and little incentive to hang around at this point. I expect prices to drift defensively into the reports on Friday and ideally will be poised for a minor bounce from there. 


Liquidation continues across the entire bean spectrum but is most prominent in the nearby months.  The irony in this is that world cash markets have perked up just a bit but with thoughts that the Friday reports will reflect enough supply to reach new crop, the long has little to hang around for.  As with corn, speculative funds have been liquidating but have more positions to surrender unless the Uncle Sam provides them with a friendly surprise on Friday.

Conab slightly boosted the estimate for Brazilian bean production this morning and now estimates a crop of 86.3 MMT.  This was up .2 million from last month.  This compares with last years production of 81.5 MMT. 

I do not believe the USDA will make any adjustments in the yield for this report but of course with the increase in acreage, it should still reflect a big bump in production.  The average estimate is 45.1 b/p/a, which is actually just a touch below the June estimate of 45.2.  The average estimate for total production stands at 3.787 billion with 2013/14 ending stocks expected to be at 128 million and 2014/15 at 417 million. 

The trade recognizes that the bean crop will be made or not in the month of August but regardless, with what we know right now there seems to be little incentive to bring in or sustain buyers.  If we have not reached up to fill the gap at 11.32 ¾ by the close today in November futures, we should have a valid mid-point measuring gap.

Morning Comments - The Bear continue to hold the better hand

Jul 08, 2014




We have seen prices stabilize overnight after another punishing day lower across the grain and soy markets but if this can amount to anything more that a dead cat bounce is yet to be seen.  I suspect we should at least be able to flatten a bit between now and the USDA reports on Friday.

About the only serious concern for production around the world right now is India.  Rains have come to the southern regions of the country but have been stingy yet to the north.  This country is the top rice exporter in the world and has emerged over the past few years as a wheat exporter as well and with the touch and go situation they face currently, the government has dropped a program where rice and wheat is auctioned from government stockpiles until they have a better hand on the crop size.  They believe they have enough inventory for domestic usage if there is a problem but with over 1.2 billion mouths to feed they would rather be safe than sorry.  Through July 2nd the monsoon has been 43% below average.

Domestically, winter wheat harvest has progressed to 57% complete, just 3% behind average and 44% of the crop rates poor/very poor. For spring wheat, 47% of the crop is now headed and ratings were left unchanged at 70% good/excellent.  Export inspections picked up a touch from last week but remain somewhat uninspired at 15.3 million bushels.  This brings the YTD total up to 83.3 million bushels, lagging the year ago pace by almost 30 million bushels.

The attention for the balance of the week should concern the S/D report to be issued Friday.  The average trade estimate for total wheat production is 1.964 billion bushels, which would be 22 million higher that last month. The current estimate for the 2014/15 US ending stocks are 590 million bushels, which would be an increase of 16 million from June. The range of estimates runs from 522 to 723 million. The average estimate for world ending stocks is 188.76 MMT with a range of 186.2 to 191 MMT.  This number would be fractionally higher than the June estimate.  Look for sideways choppy action between now and then.


The corn market gapped into lower lows yesterday with spot futures dipping just ¾ of a cent through the January 10th reaction low but December down to the lowest level traded for a December contract since August of 2010.  Could this have been and exhaustion gap?  The possibility exists but I suspect we will need something at least remotely encouraging from the reports on Friday to stimulate short-covering. 

That was certainly not found in the weekly updates.  75% of the crop remains rated good/excellent and 15% of the crop nationwide is silking.  Last year just 6% of the crop was silking and the average for this time of year is 18%.  The talk around the industry right now is that we will have over 50% of the crop pollinated by mid-July with little to no stress on the plants.  I recognize there are those sitting in areas of extreme wetness that would argue, but the overall rating and conditions do portend for exceptional yields and in traders minds it is becoming larger and larger.  The average estimate for the report on Friday has the yield at 165.9 with a range of 165 to 170.  The average estimate for total production is 13.931 billion bushels, which would be up an insignificant 4 million from June.  The range of estimates is 13.842 to 14.314 billion.  The average estimate for the 2013/14 carryout is 1.233 billion and for 2014/15 is 1.807 billion.  Finally the world ending stocks are expected to bump up 1.82 MMT to 184.47 MMT, which if correct would set a new quantity record and could be the largest stocks to usage ratio since 2004/05. 

Export inspection did bounce well from the previous week as we loaded 42.5 million bushels. For the marketing year we have now shipped 1.5329 billion bushels but need to step the weekly pace up to 45.9 million to reach the USDA target of 1.9 billion.

Here as well I would expect to see sideways chopping action between now and the Friday Morning reports.  As you would expect, this market sits in a very oversold position and everyone’s focus is understandably bearish but that is the kind of setup you want for bounce.  That said, when it comes the head winds are going to be stiff.


The bean market also gapped into lower lows yesterday with November futures reaching the lowest point traded since the 13th of February.  Seeing that we bounced back for the close, even with the pressure this morning we are not into lower lows, at least yet.  While it is possible that was an exhaustion gap in this market as well, with fund length remaining, we had better see something encouraging on the reports Friday for that to be the case.  If by chance that was a measuring gap instead, it points to a move down to at least 10.19 between now and fall.

As far as the report is concerned, the average trade estimate for yield is 45.1 b/p/a with a crop estimate of 3.787 billion.  That yield number is down 1/10th from last month but the production number would be 152 million bushels higher.  The average estimate for the 2013/14 ending stocks is 128 million bushels, 3 million higher than June and should reflect a potential 60 to 65 million bushels negative residual.  Ending stocks for 2014/15 are estimated to be 417 million, which would be an increase of 92 million from last month.  The world ending stocks estimate is basically unchanged from last month at 186 MMT but keep in perspective that would be a record. 

Export inspections have been fairly consistent over the past three weeks but we have been lagging the average pace needed to match the USDA target.  For the week ending July 3rd we shipped 2.2 million bushels bringing the YTD total up to 1.5674 billion.  To reach 1.6 billion we need to average 4.1 million per week.

We have the market psychology quite negative and the trade expecting larger numbers, which could have us setup for a positive surprise.  That said, as the outlook stands right now, beans need a piece of positive news if there is to be any hope of stemming further long liquidation.



Morning Comments - Searching for news

Jul 07, 2014



We have become so accustomed to having overnight trade it feels like one is flying blindfolded on a morning when that is not the case.  Many grumbled and groused when trading hours were expanded and now it is difficult to imagine trading any other way.

Making it even a bit more challenging this morning is the fact that there is little fresh news to discuss.  Scattered rain passed through many areas of the Midwest through the holiday weekend but if there were any violent storms as we have seen in many areas recently, I have not read about them.  The outlook into mid-July continues to look very favorable for corn pollination.  I had the opportunity to drive several hundred miles over the weekend in Northern Illinois and into Wisconsin and while you can find a bean field now and again that is suffering from wet feet, overall crops look universally excellent. 

Weather overseas has been good for crop development as well.  More rains are forecast across Europe this week, which could be pushing the outer limits of being beneficial and conditions continue to be good in Canada.  The situation in India remains a bit tense but rains did make it into key growing regions over the weekend. 

Speculative funds have continued to add to short positions in wheat and reduced longs on the other grains and soy.

You would have to expect a lower opening at the bell following all the overseas trade but just how much is the question at this point.  The corn market sits within a nickel of what should be very solid support, beans within 30 cents and wheat 15 cents.  We should not see any significant changes in the weekend crop rating this afternoon.

I suspect shortly after the opening today, the focus of the trade will quickly shift to the supply/demand reports that will be issued this coming Friday.  There will remain a possibility that the USDA will bump yields a bit higher due to the generally good weather and the good crop rating but by no means is that assured.  It may be more interesting at this point to see how the incorporate the bushels uncovered in the grain stocks report.  We sit in a very oversold short-term position and I suspect it will be difficult to try and extend at this time.

Weekend Commentary - Thought Police

Jul 03, 2014



If you have tuned into the news this past week, you have undoubtedly heard about the controversy concerning a "social" experiment that Facebook conducted on unsuspecting users of the social network.  As it turns out, for a week back in 2012, all in the interest of "science", Facebook chose 689,000 lucky users. For part of the group, the social network fed them negative stories in their news feeds while the other group received positive stories. Guess what, and this is the shocking part, those who read negative stories tended to post negative comments while those that received happy information responded by posting in like kind.  Now I suspect there is some would-be researcher out there who is very disappointed because he had just applied for a multimillion dollar federal grant to conduct just such a study, but really, hasn’t anyone who has raised a child or taken an introductory psychology class already learned this?  That is why it is all the more preposterous for Facebook to maintain this was conducted as innocent research.  This should be classified as a real life example of Orwell’s "thought police", except in this case they are not only monitoring what we read and say, but manipulating it for later commercial purposes.


By no means am I making light of what this company has done, but I am equally as amused/annoyed by many of the responses.  We hear indignation about the invasion of privacy, the violation of trust, reducing users to little more that lab rats and of course abuse of power, all of which are true.  But that begs the question, does this surprise you?  It does not matter if it is Facebook, Google, Bing, Yahoo, Pinterest, et al; they are all in the business of collecting data from every move we make on the internet in an effort to sort that through a number of algorithms to either direct information or, better, a product back to us that we can possibly use and/or ideally purchase.   Facebook even has a specific term; they refer to it as "curating" information.


Political activist, Eli Pariser, developed the concept of The Filter Bubble and wrote a book of the same name that examines the ways and means that search engines, mail servers and socials sites gather our information and then make determinations of what we should receive.  For example, did you know that when you search for something on Google, it will look at 57 individual data points about you before returning your answer?  In reality, Google or Facebook or any of these other electronic sites are delivering to us information that "they" have determined we want.  What Mr. Pariser found in his research is that, as you have developed your "electronic profile", the algorithms in the search engine will ultimately deliver results that only match your interest and biases. If you would like to watch a highly informative TED presentation by Mr. Pariser, click here http://www.ted.com/talks/eli_pariser_beware_online_filter_bubbles .)


Part of the danger in all of this is that it will potentially create a people who are already more myopic than we already are.  Certainly we all like to read information and outlooks that appeal to our biases. But if we limit ourselves to only that, how will there ever be a chance of open and honest dialog where points of view that differ from our own are represented?  If everything we are presented is already in agreement with ourselves, soon we come to believe that "my" opinion must be the majority view because every time I search for information that is what my search tells me.  This is the World Wide Web, right, so it much be searching everywhere.  Isn’t it curious that as we as a culture have more and more information at our fingertips, we appear to become more linear and separated in our thinking?  Now there would be a study worth funding—has the explosion in the accessibility of information on the Internet created a more narrowly focused society?   The dysfunction in Washington would seem to back this up.

Again, by no means am I condoning the Facebook "social research" project, but I believe the reason people should really be up in arms about data gathering is that someone else has determined what we should and should not be reading.  Because a computer program has decided via our past patterns that we should only be provided with a certain kind of information because it fits our profile, and if you give us what we want to see, we will be happier, and of course if we are happier, we will be more likely to purchase something that the computer says our demographic will want to buy.  Unlike the "thought police" in George Orwell’s 1984, we have not lost the privacy of our information so they can stamp out dissidents, but rather, in an effort to sell them the latest fashion accessory for the next protest march.  I am not sure which is more dangerous.

Morning Comments - Winding down a watershed week

Jul 03, 2014



Have a Safe and Happy Independence Day


I spoke too quickly yesterday.  It did rain before I left the office with additional precipitation again overnight.  The sun is shinning this morning and the current forecast does promise clear skies through the majority of the long weekend. 

As you might suspect for holiday shortened trade, volume of trade overnight appears to be quite light but we did catch a little bit of short-covering activity.  In the world trade, the Black Sea continues to dominate the market with the lowest prices.  I have noted previously that due to all the political unrest and uncertainty earlier this year, Ukraine was not at all active in selling new crop production, which means they now have some catching up to do.  Overall world weather conditions look excellent.

Export sales came in a bit better than expected.  The trade was looking for something in the 300 to 450k MT range and the number came in at 567.5 MMT, or 20.86 million bushels.  This was 57% over the previous week.  The top three purchasers were Brazil at 140,500 MT, Taiwan at 137,200 MT and Mexico at 79,900 MT. 

It is difficult to become very excited about the strength we are seeing this morning but this possibly could be the second day in a row of higher closes.  If we could extend this into a week of sideways trade, we could then make a case for a corrective rebound. 


The corn market was quietly higher in the overnight trade but this of course after three days in a row under pressure with prices pushing down to the lowest levels since December of last year.  We are struggling now in the daylight trade but could be entitled to at least a little short covering pop for the close.

The ethanol sector continues to be a standout for usage this year as last week we produced another 280,182,000 gallons equating to around 100 million bushels of corn.  Through April, it was reported that the overall corn usage for ethanol was up around 10% over a year ago and it would seem reasonable to expect the USDA to bump up corn usage another 25 million to 5.075 billion on the next supply/demand estimate.  Had we not found additional bushels on the quarterly grain stocks report, that might have excited the trade but should make little difference at this point.

Old crop export sales fell right in line with expectations at 290,700 MT or 11.44 million bushels.  The top three buyers were Mexico at 129,800 MT, Japan at 90,600 MT and the Netherlands at 66,000 MT.  This figure was 12% below the four-week average.  New crop sales totaled 474,700 MT or 18.69 million bushels.  The largest buyer was unknown destinations at 224,800 MT followed by Japan at 67,100 MT and then Guatemala at 59,600 MT. 

Hanging over the corn market at this point like a huge cloud, pun intended, is the weather outlook.  The current forecasts for July call for normal to cooler than normal temperatures with frequent showers.  The trade is well aware that this kind of outlook for pollination has traditionally produced big yields.  There should still be potential for short-covering bounces if the bear does not make satisfactory headway but without some type of Black Swan event taking every one by surprise, I suspect they will be limited in both time and price.  A push back now against the levels we broke down from early this week could be a real victory.


We are looking at very narrow ranges and two-sided trade so far in the bean market as we move to finish out this shortened watershed week.  As I have commented previously, even though the revisions by the government this week should have taken away most of the story the bulls have been clinging to, particularly for old crop, we really cannot afford to do anything to stimulate additional demand, which for the time being should limit the downside potential. 

While not negative, old crop export sales barely registered this week with a total of 40,600 MT or 1.49 million bushels.  Granted that still digs the hole a little deeper in relation to the projected sales but the additional bushels recovered in the stocks report has eased most traders concerns.  Sales were made to Malaysia of 13,500 MT, Indonesia at 9,100 MT and Taiwan for 4,800 MT.  New crop sales were respectable though at 431,200 MT or 15.85 million bushels.  The largest purchasers were unknown at 206,000 MT, China at 168,000 MT and Mexico for 45,000 MT.

As I have commented previously, I would be the first to admit that the weather we have experience this year has not been conducive to big bean yields and the 45.3 that the USDA is currently using would appear optimistic without shifting to sunny and warm conditions out in the month of August.  Of course that could still happen and for the time being, I suspect the rain make grain mentality crowd will continue to hold the cards. 


Morning Comments - Hard to make lemonade from this

Jul 02, 2014




Something unusual happened overnight; It did not rain.  In fact, it would appear that other than a few scattered showers here and there, we do not find much moisture in the forecast through this upcoming weekend, which comes as a relief to many across the middle of the Corn Belt.

Overall news is fairly quiet this morning and I suspect the attention of many has shifted to the extended weekend just ahead.  Ag markets will close at noon tomorrow and trade does not resume until Monday morning.  Egypt has again secured wheat from Romania and Russia and it would appear that an US origin sales at this time will be limited to program purchases.  The Black Sea wheat will continue to dominate the trade. 

About the only place in the world right now where with ongoing concerns about wheat production have been in India where the monsoons have been late in arriving.  That may be changing though as heavy rains have hit Mumbai and the India Meteorological Department predicts that the monsoon will still reach 93% of the long-term average.  I read a quote this morning by the agricultural minister that is difficult for anyone in our culture to comprehend, but I know can happen there.  He stated "We will think of all possible measures to help farmers so they are not forced to commit suicides due to crop failure."  Hard to imagine Tom Vilsack ever needing to make such a comment. 

I suspect price activity will be relatively quiet now through the close tomorrow and continue to believe we have pressed prices hard enough for the time being.  That said, rallies moving forward will probably be limited to short-covering and likely uninspired. 


It would take a real optimist to try and make lemonade out of the lemons the corn is dealing with at this point. The USDA reports this week deflated the last of the supply and domestic usage balloons and the weather appears to be near ideal as we move into the pollination stage for much of the Midwest.  Certainly, there have been some damage across Iowa and Illinois with the recent violent storms with dramatic pictures of entire fields wiped out by hail storms.  A customer who stopped by yesterday when shown a picture of one field that was completely shredded, commented, "Lucky Duck, if he has decent crop insurance levels and hail coverage, he is far better off than the rest of us." Hard to argue with cash corn sub $4.00. 

We will see the weekly EIA ethanol production numbers later this morning and then exports sales tomorrow but I would not expect to find any market movers.  The trade will be looking for weekly ethanol production in the 265 to 270 million gallon range.  Most of the discussion moving ahead will likely focus on the potential yield for corn and the upcoming supply/demand report on the 11th. The USDA does not often make yield revisions on the July reports as it is a statistical number but with the conditions to date, there is a possibility they could raise it.  Of course if the trade is expecting that to happen, and it does not we could still catch a little surprise bounce. 

As with wheat, I suspect we should see prices move into more of a sideways pattern now into the weekend. 


Even though new crop futures are under pressure again overnight and this morning, prices appear to have stabilized a bit seeing that we bounced well from the lows yesterday.  Bull spreads are back in play, which is quite understandable as well.

It was reported yesterday that during the month of June, Brazil shipped 7 MMT of beans, which was slightly below the previous months total of 7.05.  Last year in June they shipped 6.35 MMT and for the year to date are up 14% over last year.  Census data will be released tomorrow which should bring us up to date on the import/export situation. 

Even through the reports this week provided the market with a little more sense of security concerning the old crop supply situation and dose of reality about the new, I suspect it would be premature to look for beans to completely collapse.  We cannot really afford to do anything to stimulate old crop demand and we have a lot of weather to experience between now and August.  I would expect August futures to find support in the 12.75/13.25 range and November between 11.30 and 11.00 until we have a better handle on crop size.

Morning Comments - The final transition has occurred

Jul 01, 2014



While the phrase has been used for books and movies titles it would appear yesterday that we experienced a "perfect storm" on the grain and soybeans markets.  The actual definition given for such an event is a "confluence of events that drastically aggravates a situation" and I can think of no better description of what happened yesterday.  We all have been well aware of the overall good growing conditions throughout not only the United States but most of the rest of the world but there was always the nagging issue of current supply that gave the bulls a certain level of control.  That is at least until yesterday when the USDA nearly assured us that we should have enough inventory to reach to new crop supplies, not to mention an enormous bean acreage number and this "confluence of events" created a tidal wave of selling the capsized the remaining bull ships.  I recognize that may sound a bit melodramatic but realistically, the manner in which all these events have unfolded this year, you really have to stretch your imagination to think of a reason we can look forward to anything more that corrective bounces in the days and weeks ahead.   It would appear this was the final step that has confirmed we have transitioned from the demand driven bull side of the commodity cycle to the supply driven bear side.  


I am not going to spend a lot of time going through the report this morning as that was well covered yesterday but wheat realistically saw the least negative numbers.  That is almost a double negative but not quite.  June 1st stocks were 13 million bushels less than the trade estimate and acreage was 760,000 acres above with a boost in spring acreage particularly in Montana and North Dakota but overall we were virtually unchanged from a year ago.  The irony in the wheat is that we will still be looking at a the lowest domestic ending stocks figure since the 2007/08 but counterbalancing that will be the highest world ending stocks since 2011/12. 

Export inspections did not lend any help yesterday either as for the week ending 6/26 we loaded just 12.3 million bushels of wheat.  This brings the year to date total up to 53.49 million bushels.  This is only about 4 million bushels under last years pace at this date but we need to average 18.7 million to reach the target of 950 million this crop year.

The wheat market has stabilized a bit this morning and nearby futures are sitting right on top if key long term support at the 5.65/5.60 level.  If we can hold this range through the 4th of July holiday, there remains potential for a seasonal bounce in July.  


The corn numbers released yesterday were by no means "in your face" bearish but when you needed something positive to reinvigorate the buyer, just a little negative does not help.  June 1st corn stocks were around 130 million above the trade estimate, which should translate into at least 100 million added to the ending stocks.  A carryout of 1.25 billion is not burdensome but it provides us with ample inventory through the balance of the year and with what appears to be potential for a record production here and generally good corn crops throughout the world, it matters little.  A glass half full kind of person could point out that the actual planted acreage number is 3.76 million acres below last year but regardless, with the weather and crop conditions that we currently have, there would appear to be potential to produce a record number, possibly in excess of 14 billion bushels.  Yes, lower prices should and will ultimately stimulate greater demand but ideas of a 2 billion bushels carryout do not sound far fetched.  The last time we held that kind of inventory was in the 2004 through 2006 period.

There will be those that would argue at this point that the excessive moisture we have seen in the month of June is doing more harm that good at this point and after seeing and hearing huge storms pass through my neck of the woods last night it is easy to sympathize.  That said, it would appear that we will move through pollination period placing little to no stress on the corn plant which should be promising for yields.  The weekly ratings would appear to back this up as we improved 1%, with good to excellent at 75%, the highest since 2001. 

Export inspections fell down on the soft side.  For the week we shipped 34.4 million bushels versus a low-end estimate of 37.  Marketing year to date we now stand at 1.455 billion bushels and will need to average 49.4 million per week for the next 9 weeks to reach the target of 1.9 billion.

It is challenging to think of a reason to bounce back from these levels but we are now sitting right on top of the same levels we supported at back in December and sit in a very oversold position.  These may be little more than dead cat short-covering bounces but could still offer us opportunities to add to hedges.  


The bean bulls were hit with both barrels yesterday and dropped like a Mallard on opening morning.  Grain stocks came in 18 million above the trade estimates and while in the greater scheme of things does not sound like much, it would appear to validate we produced a larger crop that thought and should give us enough comfort room to make it to new crop supplies.  The big one though was acreage.  It sounded negative enough when you say that the figure was 2.5 million acres above the trade estimate and 3.3 million above the March estimate but when you say it is 8.34 million acres above last year does the enormity of it really set in.  Bean plants normally perform the best with hot conditions and I would be the first to argue that the current yield of 45.2 b/p/a is probably optimistic but with the additional acres, we do have some room to spare.  Even at last years yield of 43.3 we could produce a crop of 3.6 billion bushels, which would still be a record.  Granted, we know that August will be the month to really make or break yield but probably the best hope ahead for the bean market would be a setback in the South American production this winter and of course, there is no assurance that would happen.  Crop conditions domestically remained unchanged at 72%, which is the best rating since 2001.

In one-day new crop futures wiped out the last 4 months of gains and have taken control away from the bull.  I suspect November futures should find support in the 11.30/11.00 range but without a surprise event with weather moving forward I suspect rallies with be short-lived and disappointing.

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