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EHedger Closing Grain Commentary 12/2/10
Dec 02, 2010
Thursday grains sold off late to finish lower in corn and beans and higher in wheat. March corn finished 10 ¾ cents lower, Jan soybeans 3 ¼ cents lower, and March wheat 9 ½ cents higher.
The corn market lost half of what it made yesterday after being steady to unchanged for most of the day. I have included an intra-day chart of corn to illustrate just how quickly the markets can change.
Weekly exports were friendly for soybeans and as expected for corn and wheat. The actual numbers are below:
1,341,600 MT’s soybeans
758,100 MT’s corn
663,300 MT’s wheat
The Stats Canada report will be out tomorrow morning at 7 am, we will have the results in the EHedger morning letter. Today’s outside market strength would normally be seen as favorable for grains but the late selloff was probably attributed to more liquidation.
Wet weather continues to be of concern in Australia and kept wheat as the upside leader today. It was reported that as much as 33% to 40% of the Australian wheat crop could be used as feed. There could be legitimate shortages of high quality wheat around the world. Canada has the most feed wheat they have seen since 2004. With the rains in Australia, their quality is declining rapidly and they are usually higher quality wheat. Since a lot of this will go to feed, the expectation is the US will have to make up for the shortfall. Minneapolis and Kansas City wheat will likely be the first to rally on quality concerns, and Chicago wheat will try to follow. This is also something that could keep corn tempered if more and more wheat continues to get fed.
Over the past 3 weeks our markets have been in a liquidation stage. From the highs we broke into December option expiration and into first notice, all with open interest declining roughly 9-10%. Also during this timeframe was large change of ownership between the Index Funds, Large Specs, and Commercials. Establishing new long positions is a really healthy correction now that ownership is in new hands. We could see the liquidation phase extend out into the second week of December, but from the middle of December going into the middle of January we could see more buying interest as we get through the January reports.
If liquidation is done and more money starts pouring back in, it is going to be hard for this market to stay down given the fundamentals. The dryness concerns in Argentina, all the fundamentals that are still in place which took us to the original highs, and the acreage battle; the market has plenty of reasons to be optimistic.
Energy is another thing to watch out for. All the things are in the working for a 2008 style market except $100+ crude oil. Energy prices have been heading higher led by RBOB, which hit 7 month highs today. This is obviously friendly corn if this trend continues.
Last but not least: will the ethanol blender’s credit and import tariff be renewed? There is a group of senators who are trying to abolish both the credit and import tariff all together. From what it looks like they will end up decreasing the blenders credit down to 30 cents for 2 years to try to slowly relieve the ethanol industry from these government subsidies over a period of time, rather than abruptly. At least this will anger the fewest amount of people. This should be viewed as long term friendly for corn, currently we are on pace to crush 5 billion bu. which is well over the 4.8 bill the government had written down for this year. Without the subsidies it could drop to 4.5 to 4.6.
Something else to consider is the susceptibility of volatile market swings during the holiday season as traders wrap up for the year. December 10th will be the next USDA production report. This is the last major report before the end of the year. In January we will get an influx of data that should provide plenty of direction for the 2011 marketing year. Right now we are comfortable with the cash sales and hedges that we have in place. If you are looking to add additional protection, please don't hesitate to give your broker a call.
We are currently launching the newest addition of the AMMO Program. This program will allow producers to manage their complete farm operation including production costs, cash sales, hedge positions, and insurance coverage. All of the producer's information will then be used to compile a profitability matrix so that the farmer has a clear cut picture of where their farm stands. Please give us a call to learn more about the AMMO Program.
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