Joseph Vaclavik is the president at Standard Grain in Chicago. Standard Grain provides futures and options brokerage to farms, feedlots, elevators, processors, end-users and traders. Visit www.standardgrain.com for more information.
First Trading Day of 2014
Jan 02, 2014
The first grain trading session of 2014 will begin at 8:30am CST this morning following the New Year's holiday. Corn and wheat were two of the worst performing commodities of 2013, down 30% and 27% respectively. In the period from late August 2012 to the end of 2013, corn prices were down nearly 50%. The corn market in particular was in a period of transition during 2013; the market transitioned from a supply shortage to a supply glut in the span of just one harvest. The soybean market performed quite a bit better in 2013; prices were nearly unchanged from the end of 2012. Soybean ending stocks are projected to grow minimally, if at all, during the 13/14 marketing year; wheat stocks are expected to shrink marginally. Corn ending stocks are projected to grow by near 120%.
Tuesday was an ugly day in the soybean market. Old crop contracts finished near or below near-term support. Perhaps more importantly, the November '14 contract posted new lows on the close, finishing below the key $11.40 support level. The market knows that significantly more bean acres will be planted in the US in 2014 and is acting accordingly. As I've mentioned many times before in these reports, another record South American crop combined with a substantial increase in US acreage could find soybean stocks growing drastically during the 14/15 marketing year. The market is apparently already in the process of pricing in some of this, as we already know that Brazil and Argentina will likely harvest an enormous crop.
The wheat market posted a closing-price reversal on Tuesday. Nearby contracts posted new multi-month lows and rallied back to finish higher on the session. The next few sessions will be pivotal in regard to market direction. The bounce may have very well been some year-end short covering, but could turn into a more significant short-covering rally this week and early next week. A trade below Tuesday's lows would negate the reversal. US wheat is becoming more completive on the world market; some analysts believe that export demand may increase as a result. Fund traders maintain a significant short position in the wheat market and have defended it well during the past several weeks.
The corn market finished the year just a few cents above multi-year lows in most contracts. While the market has acted poorly, it has not traded below near-term or long-term support levels. Farmer length in the corn market may be the single biggest factor that will affect prices over the near term. On-farm storage is the largest it has ever been following the biggest harvest in US history; prices are low and farmers don't see the incentive to move grain. Basis levels are good relative to a "normal" year at this point in time. It is my opinion that any significant rally in the futures market may be accompanied by a break in basis. A lower futures market may mean that basis remains relatively strong. The December '14 corn market continues to hover around the $4.50 area and has seen little action as of late. The corn market has traded a tight range as of late.
Moving forward, this week's Export Sales report is delayed until tomorrow morning due to the holiday week. The USDA will release its monthly Crop Production report on Friday the 10th along with its Quarterly Stocks Report. The report may include updated acreage and yield numbers from 2013 and is historically a big market mover. The corn market has posted a limit move 6 of the last 8 years on the January report. While we don't look for this type of extreme volatility next week, the USDA has been known to surprise in January. We'll continue to monitor South American weather patterns as well as the price relationships between new crop corn and soybeans; a sharp mover lower in bean prices could push some '14 acreage back into corn.
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