Morning Comments - Full - Aftermath of the Report
Apr 10, 2014
The April supply/demand reports are not in the record books and seeing that we looked at the numbers yesterday I am not going into an inordinate amount of detail this morning. Corn exports were boosted a full 125 million bushels to 1.75 billion, cutting the ending stocks number down to 1.331 billion. While the export number certainly appeared too low before the report, the USDA may have overshot the mark with this change as there is by no means a shortage of corn around the world. World stocks were lowered .47 MMT to 158 million after the Brazilian crop was bumped up 2 MMT and South Africa 1 MMT. This compares with World stocks of 134.4 and 132.82 for the previous two years. Additionally, world coarse grain stocks were increased .72 MMT to 192.18, compared with 164.73 in 2012/13 and 166.54 in 2011/12. In both cases, this will be the largest stocks to usage ratio since 2009/2010. Granted, we have the risk of a planting and growing season in front of us but world inventories appear to be expanding.
In wheat, the domestic estimate came in right on top of the trade estimate of 583 million bushels, up 25 million after a cut in feed usage and imports. On top of that world wheat ending stocks were bumped up 2.87 MMT to 186.68 MMT. This is a full 10 MMT above a year ago but still 12.2 MMT below 2011/12.
Just in the raw data, the domestic bean numbers were the most positive of the bunch as exports were boosted 50 million bushels to 1.58 billion, a new record, seed usage was bumped up 8 million to reflect the higher acreage and imports were pushed up to 65 million bushels, which would also set a new record and residual usage was cut 12 million bushels and stands at zero. The net result was a projected ending stocks figure of 135 million bushels. Keep in perspective that throughout much of last year, we were looking at a possible carryout of 135 million bushels and we were dealing with a tighter world bean inventory. On the world estimates, the Brazilian crop was cut 1 MMT to 87.5 and everyone else left unchanged. After usage adjustments the ending stocks were lowered 1.22 MMT to 69.42 MMT. While that was a downward adjustment this compares with 2012/13 ending stocks of 57.87 and 53.58 in 2011/12. This will be the highest stocks to usage ration since 2010/2011.
Wheat understandably reacted lower to the figures but corn and beans were able to extend into higher highs for the move, but corn most certainly could not maintain the strength and beans, while higher were not really all that impressive. And this in face of funds buying another 8,000 contracts of beans. Failure to react positive to positive news should always be viewed as a sign of a very tired bull. If we cannot find another shot of adrenaline between now and the beginning of May, i.e., weather, it would appear that this advance has just about run the course.
Fundamentals – Wheat export sales just fell off a cliff and set a marketing year low at 41,800 MT or 1.5 million bushels. We are winding down the marketing year with only 8 weeks left and we did sell 349,100 MT of 12.8 million bushels for the next crop year. This brings current year to dates sales to 1.113 billion bushels, which is just 62 million behind the USDA target.
Technical – May wheat posted a big outside lower reversal yesterday and while we have stabilized overnight, it would appear that our corrective bounce is complete. If we now violate the 38.2% retracement it should open the door for a push down to at least the 50% retracement of 6.38 ½. Ideally we should be headed lower at least into the 21st where we find the 180-calendar day cycle count from the October high. The intermediate indicators are not correcting any too rapidly which could stretch out a correction lower into the 30th/1st.
Fundamentals – Corn export sales were a bit disappointing and this after the USDA gave us such a vote of confidence in their projections. For the 13/14-crop year we sold 658,700 MT of 25.9 million bushels, which was down 31% from the previous week and 62% from the 10-week average. This brings the year to date sales up to 1.652 billion bushels, placing us squarely 1 billion above were we were one year ago. With our new target of 1.75 billion and 21 weeks left in the year, we actually only need to average sales of 4.7 million per week. Sales for 14/15 were 2.3 million bushels.
Technical – The corn market spiked higher after report yesterday but the strength was fleeting. In the process, May futures completed a 38.2% retracement of the entire swing lower from the peak last June at 5.14 ½ and reached to a high of 5.19 before turning back lower. While the overall action is disappointing for the bull, so far we have been able to maintain key support. The 13 and 21-day moving averages that have guided this market higher since late January are crossing today at 4.98 and 4.92 ½ and the low so far this morning has been 4.97 ¾. With the short-term oscillator still close to the oversold mark, there remains a possibility of another poke to the upside between now and the cycle dates on the 17th/18th. That said, if we begin to close below the moving averages listed above, which continue to edge higher each day, the party is likely over.
Fundamentals – Never say die. For the week ending April 3rd, we sold an additional 2.9 million bushels of soybeans, bringing the year to date total up to 1.638 billion bushels. Even with the boost in the projection to 1.58 billion we are 58 million bushels in the red. I suspect that we imported more this past week that exported so to a certain extent, the number is a moot point. Within the sales figures there were cancelations by unknown of 4.2 million bushels. Sales for 14/15 came in at 7.7 million bushels.
Technical – May beans accelerated above 15.00 for the first time yesterday and on the spot chart, the first time above that mark since July of last year. While still into new highs, the close was about mid-range yesterday and is likely indicative of a market that is losing momentum. I continue to believe there is a possibility that we will not have posted our final high until we reach the 270-day cycle count from the August bottom that is on the 5th of May. That said, I would look for choppy volatile action between now and then. Additional cycle dates sit on the 11th and the 23rd.
Soybean Oil – Export sales were 3,400 MT, which were toward the low-end of expectations and well below the 10-week average of 13.2k.
May bean oil did press into higher highs for this rebound yesterday and almost completed a 61.8% retracement of 43.06. Even with a little overnight pressure, we remain above the previous reaction high of 42.35 and intermediate indicators point higher. Cycle dates line up for Friday but is suspect we have room to advance beyond then.
Soybean Meal – Export sales came in at 179,600 MT, which was about the middle of expectations. The 10-week average is 192.7.
May meal did extend into a higher high yesterday but we could not hold that new real estate for the close. As with beans, ideally we will not see our cycle high until the 5th of May but this market could very well just experience choppy volatile action between now and then. Cycle dates ahead on the 11th, the 21st/23rd, which includes the 360-calendar day cycle count from the 2013 bottom and then the 5th of May.
Cotton – Export sales were actually a negative 10,900 rbales.
The cotton market is down flirting with the low side of its trading range and still looks like it could tip further south. May futures should find support from 90.40 down to 89.65, which is a 38.2% retracement but if sell stops are triggered, we could see a quick flush down to 82.27. The intermediate daily indicators continue to work lower and should be back into an oversold position around the first of May. Cycle dates ahead on the 21st and then the 1st.