Apr 19, 2014
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EHedger Report

RSS By: Dustin Johnson

Dustin works with a wide net of large producers throughout the Midwest. His analytical market approach and objective hedge strategy development is specific to the needs of every individual.

Corn Prices Fall from Favorable Planting Weather

Apr 16, 2014

Wheat finished with double digit losses while old crop soybeans posted double digit gains.  Favorable planting weather is forecasted for the Midwest which pushed new crop corn back below $5.  Soybean strength was a continuation of yesterday’s bullish NOPA crush report.  This latest crush number raised the pace well beyond previous estimates and suggests the need to import more or ration crush demand through higher prices.  Wheat retraced some of yesterday’s gains but the price is still well above its major moving averages.  After the grains closed it was reported that a group of pro-Russian separatists attacked a Ukrainian military base.  Escalation of Ukrainian/Russian tensions has resulted in rising wheat prices so this may affect prices on the overnight open.

The EIA ethanol report released this morning showed production up 43,000 BBL per day while stocks were down 0.5 to 16 million BBL.  This was a rather strong report but also not a surprising one given the strong margins.  Even with strong weekly ethanol numbers final demand for ethanol is not likely to change anytime soon given the blending wall.  Export and feed demand have been strong for this marketing year but we are still going to be left will between 1.3 and 1.5 billion bushels of corn carried into 2014-2015. With the potential for aggressive planting in the next few weeks we believe corn has more risk to the downside.  The technicals are starting to roll over as well.

December 2014 Corn

December 2014 Corn

Tomorrow morning the USDA will release weekly export sales at 7:30am.  Estimates are calling for -100k to +100k MTs of old crop beans, 175k to 350k MTs of new crop beans, 550k to 850k MTs of corn (old/new combined), 50k to 250k of old crop wheat and 225k – 375k of new crop wheat.

As a reminder markets will be closed on Friday in observance of the holiday and reopen for Sunday night trading.

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EHedger | 866.433.4371

Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

45+ Years of Ag Brokerage Expertise

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


WASDE Report Tomorrow

Apr 08, 2014

Grains settled higher on Tuesday with old crop soybeans leading the way.  There was some confusion toward the end of the day session when the electronic corn, wheat, and livestock futures stopped trading.  The CME group reported their technical error and motioned for the pit to handle the settlement process.  In the end May corn settled 7 ¾ cents higher at $5.07 and December corn was 7 ¼ cents higher at $5.13.  This was a large 4 cent swing in the May – Dec corn spread between the time electronic markets froze and the settlement of the pit.  Even though December corn settled at $5.13, it never traded there as far as the pit quotes are reporting, it was only a product of a spread sale on the final minutes in the pit. We expect the overnight December corn futures contract to open near $5.08 - $5.09 where they stopped trading.  Soybeans continued trading during this shutdown period and the May contract settled 18 ¼ cents higher at $14.82 ½ while the November contract was 9 ¼ cents higher at $12.17 ½.

Intraday chart of December corn:

December Soybeans

CIF basis was a bit stronger today for corn and slightly weaker for soybeans.  Yesterday the front end of the market was the weakest on heavy bearspreading, today it was the front end that led the way higher on heavy bullspreading (until the pit settlement of corn).

After the close the USDA released their weekly crop progress report.  Winter wheat conditions were reported at 35% good-to-excellent which is 1% less than they were at this time last year.  Cotton was 6% planted which is average and rice was 15% which is slightly below the average of 19%.  The USDA will start reporting the corn planting progress in next week’s report.

WASDE REPORT TOMORROW

Traders are preparing for the USDA’s WASDE report which will be released on Wednesday at 11:00am CST.  The report will include the typical monthly changes to the USDA’s supply and demand estimates but most traders will be watching for the latest South American production estimates as well as projected final soybean demand.  Getting to our final domestic soybean carryout has been the biggest unknown factor for CBOT traders.  On last month’s report the USDA raised soybean imports by 5 million bushes, raised exports 20 million, and lowered crush by 10 million resulting in a net carryout reduction of 5 million bushels.  Their total export demand estimate was 1.530 billion bushels.  Cumulative sales are already 103 million bushels more than this estimate at 1.633 billion bushels.  It is normal to expect a certain amount of these extra sales to get rolled to the following marketing year. Last year for example 46.2 million bushels were sold but not shipped.

Most project the USDA to account for the strong sales by raising their export estimate.  The recent Reuters poll has the average analyst projecting a final carryout of 139 million bushels which is 6 million less than the March estimate.  We doubt the USDA will report a dramatic change and will stick to a more gradual one as it did last month. We could potentially see another 5-10 million in imports and 10-15 million in export sales.

Corn export sales have been strong as well.  Cumulative sales are at 1.5894 billion bushels and the last WASDE report is guessing 1.625 billion.  The USDA is likely to raise this estimate again.  The average analyst believes the corn carryout will drop by 53 million bushels from the March estimate which will most likely come from higher exports.  However, any increase to exports will likely result in a drop in feed demand in our opinion since that is already inflated based on cattle and hog numbers.  Although we believe the feed estimate will ultimately drop, it may not be on this report.  The latest stocks report showed roughly 100 million bushels less than expected.  As we know from previous stocks reports these surprises can be from the amount bushels in transit at the time of count.  An accurate measure of the abundance of corn can be seen in the interior basis changes through the next few months.  At the end of the day we are still projecting a carryout near double of what we thought on this report last year.  This gives the market a larger margin of error when it comes to production changes.  This is also likely why the July – December corn spread is still below 0 when this time last year it was trading at 87 cents over!  I have included the average analyst estimates in the tables below. Have a great rest of the week!

Sign up for our Market Commentary for our hedge recommendations.

EHedger | 866.433.4371

Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

45+ Years of Ag Brokerage Expertise

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


Are November Soybean Futures Overpriced?

Apr 03, 2014

Grains settled higher on Thursday rebounding from Wednesday’s losses.  The market choppiness is a product of uncertainty, mainly in the old crop soybeans.  We have sold roughly 105 million more bushels of beans than the USDA has in their final demand estimates.  When we are only expecting a final carryout of 140 million bushels being oversold means we can’t just lower that carryout.  These extra sales will either need to be rolled into the following crop year or another aspect of the supply/demand table will have to get adjusted (or a combination of both).  With the record large South American crop we could see easily see more soybeans imported.  Or we could see crush demand slow from price rationing. So far we haven’t seen enough of either to make the USDA numbers fit and that is why there has been such a rush to buy old crop soybeans.  Does that mean we should also see November soybeans rally?  These are two completely different crop situations.  New crop soybeans are projected to get a record 81.5 million acres in the US this year and there are still acres unaccounted for which means this number can grow.  South American soybean production is expected to top last year’s record crop by 8%.  The world stocks-to-use ratio is projected to be above 25% which is clearly abundant.  All signs point to a stocks build in 2014-2015.  Should November soybeans add risk premium just because the old crop contracts are rallying?  Barring any weather problems this summer we believe November soybeans are overpriced above $12.00 and for that reason we want to remain well hedged heading into the planting window. The next large report to watch for is the April 9th WASDE which will have updated South American production estimates as well as US supply and demand estimates. For more marketing information please contact EHedger at 866-433-4371.

November Soybeans

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EHedger | 866.433.4371

Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

45+ Years of Ag Brokerage Expertise

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


Upcoming Report

Mar 26, 2014

Old crop soybeans were sharply higher on Wednesday while wheat and corn were lower.  May beans settled 12 cents higher at $14.40 while November beans were 4 ½ cents higher at $11.93 ¼.  Today’s corn weakness was related to lower ethanol production and higher ethanol stocks from the EIA report.  Every other day we seem to see profit taking in one product while positions are added to another.  Overall we are still near the high end of the range for corn, wheat, and soybeans heading into one of the largest reports of the year.  The Reuters poll of analyst estimates was released yesterday afternoon.  The full "cheat sheet" is located below:

ANALYST ESTIMATES FOR USDA REPORTS – MARCH 31st (Reuters Poll)

US Corn, Soybean and Wheat Plantings

 

Avg Estimate

Range

USDA 2013 Plantings Final

Corn

92.748

90.500 - 94.000

95.365

Soybeans

81.075

78.500 - 83.600

76.533

All Wheat

56.277

54.800 - 57.711

56.156

Winter Wheat

42.157

41.800 - 44.000

43.090

Other Spring

12.270

11.000 - 13.500

11.596

Durum

1.794

1.390 - 2.200

1.470

 

 

 

 

US Quarterly Stocks on March 1, 2014

 

Avg Estimate

Range

USDA 2013 Plantings Final

Wheat

1.042

0.985 - 1.115

1.235

Corn

7.099

6.861 - 7.540

5.400

Soybeans

0.989

0.955 - 1.087

0.998

These estimates have total corn and soybean acres up almost 3 million from 2013, much of those coming from prevent plant of course.  Although the soybean acreage estimate is sharply above last year’s number, we still think the average guess is a little conservative.  We wouldn’t be surprised to see up to 83 million acres of soybeans (the highest estimate in the poll was 83.6 million). This would suggest total carryout above 350 million bushels of soybeans which leaves a lot of downside risk in the market if we have a normal growing year.  We can’t rule out a large stocks surprise which we seem to get on almost every report.  For now we are remaining with hedges that allow for reasonable fluctuation so that prices are protected in a falling market but upside potential remains. We recommend running any strategy through the AgYield software especially before reports like these.  If you are looking for additional downside protection just for the report look at the May Short-Dated New Crop options.  These expire with the rest of the May CBOT options but derive their value from the new crop futures.  This way you don’t pay for the whole year of time value if it is just short term coverage you’re after.  For more information please give us a call and have a great week!

CORN, BEANS, WHEAT COMBINED CHART – substantial rally since the last quarterly stocks report puts the market at risk of a corrective move

Corn, Beans, Wheat Combined Chart

Sign up for our Market Commentary for our hedge recommendations.

EHedger | 866.433.4371

Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

45+ Years of Ag Brokerage Expertise

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


Funds Adding to Their Corn Longs

Mar 21, 2014

Soybeans and wheat closed with double digit losses on Friday while corn stayed near unchanged.  This appears to be a liquation of the inter-commodity spreads ahead of the weekend.  Ever since the January report there has been a noticeable change in fund positions in corn, wheat, and soybeans.  This can be viewed in the following chart which includes one long wheat, one long soybean, and two short corn all in the front month contracts.

Daily Continuous Chart

Daily Continuous Chart

Corn’s strength was likely derived from the large purchase by Egypt on this morning’s 8:00am announcements.  They bought 340,000 MTs of corn for old crop delivery.  Our export sales pace has remained rather strong for corn and probably makes up for the expected decline in feed/residual from the current lofty USDA demand estimates.  The Reuters and Dow Jones poll will not be released until next week. Until the reports are released on the 31st we expect markets to remain in their current ranges.  If you have any questions please give us a call.  Have a great March Madness weekend!

Managed Money Position Changes through Tuesday, March 18th (futures and options combined):

                      Net Position Change                                   Net Position

Corn:                  +18,299                                      +227,860 contracts (1.14 billion bushels)

Soybeans:           +52                                             +198,672 (0.99 billion bushels)

Wheat:               +13,521                                       +24,036 (0.120 billion bushels)

Sign up for our Market Commentary for our hedge recommendations.

EHedger | 866.433.4371

Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

45+ Years of Ag Brokerage Expertise

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


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