Aug 23, 2014
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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.

Weekend Commentary - Fed's Next Move

Aug 23, 2014


I cannot believe that it has happened again!  While I accepted the excuse that my invitation to the annual World Economic Summit held in Davos Switzerland must have gotten crossed in the mail, and late January is a difficult time for me to get away anyhow. But this is the final straw.  This week, the Kansas City Federal Reserve is hosting its annual economic conference in Jackson Hole, Wyoming and evidently someone slipped again and my invitation did not arrive.  I am beginning to feel like this is not an unintentional oversight.  Though often this kind of event is nothing more than dry conversations presented by even drier academics, but the Jackson Hole event does have a history of providing a few surprises.  It was here in 2010 and again in 2012 that Ben Bernanke announced the strategy for Quantitative Easing.  Possibly even more earth shattering than that was back at the 2005 conference when Raghuram Rajan, economist from the University of Chicago, did the unthinkable; he blasphemed the most high, Alan Greenspan.  At the event, which was realistically a farewell party for Greenspan, Dr. Rajan presented a paper that questioned the fiscal policies of the then Fed Chairman and suggested that they could actually be making the financial world "riskier" and could lead to a speculative bubble.  The nerve!  He was roundly criticized by leading economists of the day and labeled as misguided and a luddite.  Whoops. 

While there was no such name-calling or controversies at this year’s meeting, there was considerable discussion and debate as to when the Federal Reserve would begin raising interest rates.  As we are well aware, the Fed Funds rates have realistically not moved higher since June of 2006 and have effectively been at zero since the fourth quarter 2008.   We already know that the Fed does intend to begin raising rate sometime after October when the bond-buying program has been completely tapered; it is just a question as to how much longer after.  The most dovish members of the committee, including chairperson Yellen, maintain that the employment situation is still very tenuous and that rates will not likely move higher until late in 2015. The hawks appear to be pushing for a move possibly in the 1st quarter.   

By no means do I profess to be an economist and certainly do not understand the intricacies of that science the way the trained professionals of the world do, but from an arms length perspective, it would seem that to perfectly micro-manage and time such as move, with an over $17 trillion economy, is impossible.  Unlike Europe, we appear to be growing slowly, but surely, are consistently generating an increasing number of jobs and have been rebuilding consumer confidence. So why are we waiting?  The doves might ask what it hurts to wait a little longer. Oh, I don’t know, maybe the risk of unwarranted speculation creating artificially inflated assets that could create additional bubble in markets.  Certainly nothing that hasn’t caused problems before.  For now we will have wait and watch for more signs.  The next FOMC meeting will be held the 17th and 18th of September so there will be at least a few weeks before we might find a shift in policy and a definitive date for when that will happen.

Looking out a bit longer term, just in case anyone from the Fed happens to be reading this, know that I am willing to forgive the oversight on my invitation one more time and I will make sure my schedule remain open for next August.  I will plan to have my fly-fishing gear packed and ready to go.

Was that a first step?

Aug 22, 2014



We have all heard the old Chinese proverb about a journey of a thousand miles beginning with a single step.  While I am not sure yet if this will qualify but the wheat market did appear to take a baby step forward yesterday and has scooted just a bit higher overnight so we could be close to starting a trip in a new direction.  We should not discount the reductions projected in the Canadian wheat numbers yesterday as if correct, while small in the overall scheme of things, it is those types of subtle changes that help to slowly turn the rudder. Even if correct, I suspect we have weeks of additional sideways trade in store. 

There is very little other fresh news for the wheat harvest at this point.  We can rehash the ongoing harvest and quality issues in Europe, the better than expected crops in Ukraine and especially Russia and of course the competitive position of the Black Sea market but realistically we have been discussing them for so long, you have to believe this information has been well absorbed into the price structure.  The impending domestic corn and bean harvests should at least psychologically weight this market and I suspect we will remain range bound until we can uncover a new story to talk about.


While the final numbers will be issued later today, the corn market does appear to have found a little support from the Pro Farmer findings in Iowa.  Their estimate places the state yield at 178.8 compared with the July USDA figure of 185.  Of course that had Minnesota at a solid 170.8 and Illinois at 196.96 but the bigger surprise for many was that Iowa figure.  While not a game changer by any means, it does shake the confidence of the bears just a touch and has help buoy prices for the end of the week.  Unless we have pushed up to 3.77 for the close this will still be a lower week and well off the high from Monday at 3.81 but in face of what has been good rains across the upper Midwest and what appear to be a promising forecast to finish off crop development, having not pushed into lower lows is a victory of sorts for the bulls. 

Corn has been in a sideways pattern for five weeks now, which is a longer congestion pattern than any time since prices turned lower back in the spring.  While that can sometimes be indicative of a change in trend, I am not prepared to jump on that bandwagon just yet.  As we have discussed previously, big crops tend to become bigger on succeeding reports and tendency is to record lows late in the year when that is the case.  Accordingly, I continue to believe we have potential for a 5th and final swing lower but that should begin sometime between the beginning of next week and Labor Day.  As I discussed at our outlook meeting this past week, I would not look at another push lower with despair but rather as a potential opportunity to set the stage for the swings into next year. 

For now, I expect overhead resistance to remain very tough against the 3.75/3.80 zone and without a surprise event, a level that would be difficult to violate.  As such, I intend to use rallies into that range for sales. 


For the past few days November beans have tried to stand their ground during the day only to surrender into the close and post lower lows.  By no means is the pressure significant but lower lows and lower highs define a bear market and while somewhat still grudgingly, that is what we are dealing with.

The bigger surprise is that with the yield reports estimates, the pressure has not been just a little more intense.  As I mentioned previously, the Pro Farmer tallies will be released later today and it would appear that pods counts for the majority of the areas covered have been very strong.  Could this year be the "perfect storm" of conditions, no pun intended, where we set a major watermark for bean yield in addition to an enormous acreage number?  While I am not qualified to answer that question, without a weather issue in the next few weeks, the potential certainly appears to be there. 

I continue to believe that November futures are headed down into the 10.20 to 9.80-target range between now and the beginning of harvest.


Did the rain fall in all the right places?

Aug 21, 2014



We have a rain moving across the upper plains states into Minnesota, Wisconsin and into Northern Illinois this morning providing a nice drink to finish crop development in those areas.  It would appear that even north and northeastern Iowa is experiencing moisture overnight which is an area that has seen little precipitation over the last 30 days.  

The overall news is sparse again this morning with the biggest story at the moment being export sales and for wheat at least, it is difficult to use the word "big."  For the week ending August 14th we sold 209,200 MT of wheat or 7.69 million bushels.  This number was down 38% from the previous week and was 62% below the 4-week average.  The largest purchasers were the Philippines at 83.5k MT, Nigeria at 62.4k MT and Japan with 34.6k MT.  This brings the year to date sales up to 396,201,750 bushels, which lags the pace for this time last year by 26%. As we have noted numerous times, right now the Black Sea is the place to go for wheat. 

Stats Canada released updated production estimates this morning with no real surprises but the wheat number did line up closer to the lower estimate.  They currently project a total crop of 27.70 MMT, which is down just over 26% from a year ago.  Keep in perspective that last year was an exceptional crop.  The average production for the past 5 years has been 28.05 MMT, which is weighted heavily by 2013.

This market has been able to bounce just a touch in the overnight trade but this of course after testing the base of support yesterday.  I would still like to believe that we have pressed wheat far enough to the downside for the time being and with the funds already short that is will be difficult to attract much new selling.  That said, for now we lack a stimulus that could carry us back higher as well. 


The corn market has been stable overnight in face of the showers that are passing across the upper Midwest.  Northeastern Iowa remains a place of concern, as it would appear that they missed the overnight showers but the maps this morning look as if they are catching a drink.   

Exports sales were not quite as disappointing as wheat but certainly do not provide any excitement for the bull either.  For the 2013/14 marketing year we sold 99,800 MT or 3.9 million bushels and for 2014/15 crop year 719,300 MT or 28.3 million bushels.  The primary purchasers for new crop were Columbia at 223,300 MT, Mexico at 193,600 MT and unknown destinations at 161,900 MT.  It would appear that China is not content to just put a stop to imports of corn, it was reported overnight that there are some promoting increased scrutiny on imported US sorghum and barley.

Canada has been steadily increasing their production of corn over the past several years but is expecting a setback this year.  The Stats Canada report estimates total corn production of 14.43 MMT, which is down 19.5% from last year.  The five-year average production total has been 12.09 MMT. 

In face of what would appear to be all negative new this morning, corn futures have held support once again and bounced.  I suspect any strength though will be fleeting and with December future encountering very stiff resistance against the 3.75/3.80 zone.


While the weather outlook continues to be a negative influence on the bean market, near-term demand from crushers and solid new crop export sales have been able to lift prices back higher this morning. 

For only the second time this marketing year, old crop soybeans sales registered in the negative column, this time for -89,700 MT or -3.3 million bushels.  For new sales though, we sold 1,420,600 MT or 52.2 million bushels.  The major buyers were China at 947.9k MT, Spain at 120k MT and unknown destinations with 111.1k MT. 

While not a major player in the greater scheme of things, Canada has been pushing up bean production and Stats Canada projects that they will again this year.  The estimate places production at 5.9 MMT, up 13.5% over last year and would be 30% above the 5-year average.  If you recall, many of the beans we were importing into the US in the first quarter were coming from Canada. 

As with corn, I suspect the strength we are witnessing in the bean market this morning will be temporary.  While still somewhat grudgingly, beans continue to poke into lower lows and I believe we have room to see a 9 in front of prices between now and harvest.

Is desperation near?

Aug 20, 2014

Today we are hosting our annual outlook seminar and have an exciting and informative agenda lined up.  I will intend to provide you will updates from the speakers in the days ahead.


It would appear that the wheat market is beginning to experience a case of disinterest at this time. We have little fresh little news to deal with as we are basically post production in the northern hemisphere, we already know that world stocks are growing this year and are moving into the final stages of the 2014 harvest.  Additionally, we will soon put the finishing touches on the corn and soybean crops so there is a lessoned risk of a big prices swing, i.e., rallies stimulated from problems there.  Accordingly, prices appear to be adrift and very understandably so.

We still have the possible risk of additional turmoil from Ukraine but I suspect the trade is becoming slightly numb to that news once again so the focus for wheat should realistically be completely demand, or lack thereof for the foreseeable future.  Problems for the U.S. though is that the with big crop coming from Russia and to a lessor extent Ukraine and Europe, no one will be beating down the doors here to purchase.  While I suspect we have already factored much of these elements into the current price structure so downside potential should be limited for now, it provides us with little reason for rally other than the occasional short covering bounce. 


We realistically do not appear to have much more news to help drive the corn market than we do for wheat at this time.  The Pro Farmer tour continues and while they did note some residual problems from the rough spring that farmers in eastern Nebraska encountered this year, even then the state estimate was not significantly lower than the last USDA estimate.

I suspect that growing season story will be pretty well behind us after this week, which is not to say that there will not be lots of excitement and conjecture in front of the September USDA reports but rather, in traders minds the crop will have been made and the biggest question will be how much larger it may be?  This is not to take away from the potential of an early frost and the issues that would accompany that, but that does not appear to be in the forecast coming from most meteorologists.  We do have Drew Lerner of World Weather, Inc.  presenting at our meeting today and I look forward to his always well-researched outlook.  

The near-term weather outlook appears ideal for putting the finishing touches on the 2014 crop with frequent showers forecast for much of the Midwest through the balance of the week and we appear to experiencing something that has been in somewhat short supply this summer; heat and humidity. 

All that said, the corn market actually did a nice job of bouncing higher into the close yesterday and even through we are back under pressure this morning, we remain in a now 5-week old sideways pattern.  While I do continue to believe the corn market should press into lower lows moving ahead into harvest and it may take some time to redevelop and refocus on demand but that said, that majority of this bear move should have already occurred.  Too often, people will tend to become desperate at the bottom and begin making sales out of a sense of hopelessness.  While I would not say we have quite reached that point but once it does happen, the end is very near. 


We seem to have a midweek void of news in the bean market as well this morning.  The weather forecasts look near ideal, news from the Pro Farmer tour has produced no bullish surprises and there has been nothing but standard export interest.  Looking at all of the above, it is a little surprising that prices have not been under more pressure than they already have.

Since breaking lower a week ago yesterday, November futures have been congesting in a range between 10.70 and 10.40 with the majority of the trade between 10.60 and 10.45. The meal market has been the stabilizing force as demand has remained a bit stronger than expected forcing crushers to step up but with harvest right around the corner, it is difficult to imagine that remaining a long-term influence. 

Once removed, I continue to expect to see November futures to make a push down to the 10.00 level, which in the greater scheme of things, is not significantly lower that current, just 7%.  As with the corn market, I do believe we have the majority of the downswing already in the rear-view mirror and this should not be the time to make desperation sales.


Rallies like beauty are fleeting

Aug 19, 2014



The mood appears dour in grain and soybean markets at this time and you have to dig pretty hard to find even the faintest of positive news. The wheat market began the day on it heels yesterday, finished out the same way and has sunk lower once again overnight.  We not only have the negative action in corn and soybeans weighing on this market but also the European and Black Sea trade which has been under pressure as we erase any risk premium that was factored in due to the turmoil in Ukraine. 

While it would be stretching to call it a positive influence, at least the export inspections were a touch better than trade expectations.  For the week ending August 14th, we shipped 21.9 million bushels compared to an upper estimate of 19 million.  This brings the year to date tally up to 190.38 million bushels, which lags last years pace by over 30%.  That said, year to date we have been averaging 17.3 million bushels and to reach the USDA target of 925 million, we only need to pick up the pace to 17.9 million per week.

Spring wheat crop conditions slipped just 2% with the good/excellent rating now at 68%, which is basically a moot point at this time.  Harvest has reached 17% complete, which is basically ½ the normal pace of 33%.

We have still not pressed into lower lows in the Chicago market but have reached to within a dime of doing so.  I would like to think that we just entered an extended sideways pattern but could soon test out that theory. 


The early strength in corn yesterday was like proverbial line about beauty as it fades with age and in this case we aged pretty rapidly.  December futures actually posted an outside lower daily reversal and have struggled again overnight.  Rains, warm temperatures and expectations for bigger crops and a short-term overbought position all weighed on values.

Throughout the day there were messages and tweets hitting the ether from the Pro Farmer tour and while you heard opinions of every stripe, the trade seems to key in on reports out of Ohio about potential record state yields.  This would be pretty typical market psychology, as bear markets tend to zero in on bearish news just like bull markets focus on bullish news. There were a number of comments about the lateness of the crop, which is partially reflected in the weekly conditions reports.

For the week ending August 17th, corn dented stood at 22% versus an average of 27%.  That said, 70% of the crop was in the dough stage compared with an average of 63% and overall conditions were down just 1% with the good/excellent rating at 72%, which is of course outstanding for this time of year. 

Export inspections were a bit above the upper end of trade estimates at 38.2 million bushels but this is still lagging the pace we need to finish out the year.  We shall have to wait for the census numbers for the final tally but with just two weeks left, this would say that we need to average 77.2 million per week to reach the 1.92 billion bushels target. 

While maybe too early to completely write it off, the action yesterday would appear to have negated the outside higher week and may be indicative that the seasonal August bounce is complete.  As I have commented previously, corn would likely face extremely tough headwinds on any advances and the performance yesterday reminds us that the path of least resistance right now will be to the downside. 


While November beans were able to maintain strength for the close yesterday, the action was less than inspiring.  We are soft again this morning and while we have not really tumbled lower just yet, we now appear to be finding resistance between the 10.55/10.60 level where we used to find support.

As with the corn, the trade appeared to focus on what would be negatively construed stories from the Pro Farmer tour. As we all know, beans yields are notoriously difficult to predict but a number of the comments I read sounded quite positive for yield.  This was verified by the weekly conditions report as good/excellent rating actually climbed 1% last week and stand at 71%.  Beans setting pods has reached 83%, which is actually 4% ahead of normal. 

Export inspection should be a moot point but we continue to push a few out each week.  For the past week, that tally was 2.1 million bushels which brings the year to date shipments up to 1.588 million bushels.  As with corn, the raw inspection numbers would appear to say we are going to fall short of the USDA target of 1.64 billion but we shall have to wait for the census numbers for the final tally. 

As I commented above, beans broke under the 10.55 support a week or so ago but quickly found a ledge to hold onto at least temporarily.  I continue to believe we will eventually make a dive down to the 10.20 to 9.80 range but evidently need another piece of negative news to push them off the current ridge.

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