Jul 22, 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.

Morning Comments - Uninspired bounce

Jul 22, 2014




As noted yesterday morning, the wheat market was not under quite as harsh a pressure as corn and beans and while still closed lower for the day, prices were towards the upper end of the trading range.  We have been able to bounce higher now overnight and while by no means have we done anything to panic the bear, I believe there is reason to think we could at least begin to stabilize at this level.

It is not that any of the news is particularly positive.  Export inspections did bump up 33% over the previous week coming in at 18.94 million bushels.  This was 5.3 million below the same week last year and for the marketing year to date, we are off last years pace by a little over 17 million bushels.  Winter wheat harvest has caught up to average and as of the 20th stands at 75% complete.  Spring wheat headed is at 84%, just 1% behind normal and conditions were unchanged with the good/excellent rating at 70%.   

Of course really none of this comes as a surprise and unlike the corn and beans, the potential size of the crop is not really growing in traders minds.  Accordingly, without major daily pressure in the other two, I would expect wheat to begin to stabilize between now and the beginning of the month and should offer the best potential of the group for a rebound in August.


The corn market has been able to bounce a bit here during the early morning hours of trade but call it what you will; a dead cat bounce, a sympathy bounce or any other description you want to give it, the strength has not amounted to much just yet.  We still have a weekly gap left yesterday between 3.77 ½ and 3.76 ½ and would need to at least cover that to suggest the bears are getting bored with their positions. 

Export inspections fell right in the middle of expectations at 37 million bushels but that number continues to run below the average we need to maintain.  Year to date we have shipped 1.614 billion bushels and to reach the USDA target of 1.9 billion we now need to bump the weekly average up to around 40 million a week.

The condition of the corn crop reflected no change this week with the good/excellent group at a substantial 76%.  We should begin to see this number drift lower now as we move beyond the pollinations stage. Corn in the silking stage has reached 56%, which is 1% ahead of average. 

With the heat wave lasting only a day or so and moisture in the forecast, there would appear to be little reason for bears to become uncomfortable in the near term.  I would expect to see prices drift sideways to lower through the balance of the month.


November beans were able to hold at the previous weeks’ low of 10.65 yesterday and have bounce back enough this morning to almost close the gap at 10.82 ½.  I have seen stories this morning that the buying has been inspired by the recent stretch of dry weather which could be creating a little short-covering but I have to think heat and sunshine are exactly what the beans are going to need as we move into August.

 As far at the conditions of the crop, the good/excellent rating picked up another percent this past week and stands at 73%.  I understand there were only two other years when the ratings were higher than this at this time which were 1992 and 1994.  In 1992 we set a new record national yield at 37.6 b/p/a and then broke that record in 1994 with a yield of 41.4.  60% of the crop is blooming versus a normal of 56% and 19% setting pods compared with 17% on average. 

Export inspections have run pretty consistent for the past several week and for the week ending the 17th we shipped 3.6 million bushels. The average for the past 4 weeks had been 3.17 million and year to date we have now moved 1.577 billion.  To reach the USDA target of 1.62 billion though, we will need to bump that average up to 7.2 million.   

It will be interesting to see if today’s rally amounts to much more than a Tuesday undo bounce or even if we can completely close the gap at 10.82 ½.  For now it would seem that the odds are stacked against the bulls and I expect to see prices work generally lower between now and the end of the month.



Morning Comments - Home on the Range

Jul 21, 2014




We have begun this new week on a pretty dour note as we have pressure across all the grain and soy markets.  Understandably, wheat is experiencing the least of the selling and we have continued to hold above the lows set two weeks ago but that is small consolation at this point.  Realistically the wheat market should be the first of the grains/soy to bottom as we have already absorbed a harvest "hit" and the market has acknowledged a solid world crop and very tough competition in the export market.  Historically, we will often see wheat bottom before corn, which of course does not say much positive for the corn outlook at this time.

Chinese import data was released over the weekend and during June, wheat imports were down 48% versus last year.  Although the Russian harvest got off to a slow start they have been making progress, which has continued to pressure their markets.  The Black Sea rules the export trade right now. 

The heat early this week will evidently be brief with showers and cooler temperatures quickly on its heels, which should keep the overall psychology of the markets negative.  As I commented initially, wheat has not pushed into lower lows but moving forward will need to at least begin trading flat at current levels to begin thinking about a bottom in the making.


There was a song that I learned in my childhood that many of you probably remember named Home on the Range.  I could not help but think of it this morning as in the song it talks about the skies not being cloudy and that we seldom hear a discouraging word.  Well this year has been anything but a real life example of the song as we have had more than our share of clouds and it is pretty difficult to find anything but a discouraging word, and that certainly applies to this morning.  The corn market has posted another weekly gap lower and into new contract lows once again. I am not going to view this as anything more than a possible minor measuring gap but if left unchecked through Wednesday, it will have open the door for a push down to at least the 3.59/3.55 level. 

Weather is really the only topic that traders are focusing on at this point and realistically it could not be much better for the vast majority of the growing crop.  After a brief warm up today and tomorrow, showers and cooler temperature are set to return and it would appear that a large swath of the corn will have pollinated under ideal conditions.  Outside of the wet spots and those areas hit by hail, corn plants have experienced precious little stress this year, which usually translates to excellent yields.  The focus should soon shift to finishing this crop out with enough growing degree-days. 

Managed funds have continued to liquidate their long position but still hold around 93,000 contracts.  This fact along will hang over the market like a weight; a 93k pound weight. 

There is very little else to look at currently.  The trade expects the weekly ratings to be flat and of course keep in perspective; these numbers will normally begin moving backwards after pollination.  There is little sense in trying to pick a bottom at this time, particularly in light my opinion that we should set what I believe will be the base level for the corn market for the next 20 year or so this fall.  


The bean market also gapped lower again this morning but unlike the corn market, did not gap into new lows for the year.  That said, if we have not filled this hole before Wednesday close, it provides projections in November futures to at least 10.45 and of course we still have the previous gap objective down between 10.20/10.10. 

New beans were supported last week by large Chinese buying and while that could return again, it would appear to be one of the few positive factors that we have.  As expected, managed funds are now short over 6,000 contracts, which is a first since late 2011.  The extended weather forecasts would appear to be favorable as we look out into August and if correct, it is difficult to think prices could hold in face of.  Look for conditions to be unchanged to possibly a touch better this afternoon. 

As I commented initially today, we have begun this week on a pretty dour note with the only words to be heard are discouraging ones.  Instead of singing a light-hearted cowboy tune, the trade has nothing to listen to but the down and dirty blues. 


Weekend Commentary - Global Demand Perspective

Jul 19, 2014



This past week, I once again had the opportunity to attend the annual Kansas City Federal Reserve Ag Symposium.  This year’s event was titled Structural Transitions in Global Agriculture. As you might surmise from the name, the program addressed the shift that is occurring in agriculture from a period of rapidly growing demand and record profitability, particularly in the grain sector, to one of tighter margins (losses) and realignment.  This is a topic that I have written quite a bit about over the past couple years and addressed last year with our publication A Look Forward.  Agriculture has always been a business of boom and bust cycles that offer both great opportunity and just as equal risk, particularly for those who mistakenly want to believe the pattern will not repeat itself time and again.  What can make things particularly challenging in Ag is that the cycle unfolds over such a long period; it can be difficult to keep in perspective.  While not ignoring the obstacles and realignments that will need to take place over the short to intermediate term, by which I mean 10 to 15 years, the information that I found most intriguing at the conference came from those looking at the livestock sector. As I have pointed out in previous articles and presentations, commodities need a growth engine to move prices into new levels. While expanding world population numbers provide part of that engine, most recently we had rediscovered the locomotive by the name of renewable energy that pushed demand into new realms and ultimately prices, but it would appear that driving force has leveled off or at least slowed down the rate of advance.  Looking forward, we very well could be reverting to what was traditionally the driving force in demand, livestock. 

Livestock production and prices have been a hot topic as of late so it should not be a surprise that one of the segments of the symposium was devoted to the outlook for livestock production. But the discussions had less to do with the current situation and more to do with longer-term projections for the growth of meat consumption worldwide. In the United States and in much of the developed world, we have confronted years of declining per-capita red meat consumption, which has partially contributed to the lowest cattle inventory in the United States since the early 1950’s. Yet the advance in prices over the past year would appear to have at least stabilized and possibly began a reversal in that trend as producers appear to be increasing the size of their herds.  More importantly for the future is the potential for demand growth worldwide and particularly in developing nations.  History has taught us that as the GDP of a nation grows and by extension the income level of the citizens, one of the first things people do is improve their diets, eventually leading to greater meat consumption. According to the USDA, over the past 40 years globally the increase in per capita meat consumption has grown at a compounded annual rate of 1.56%[1], which is actually a bit higher than the growth in real GDP worldwide for the same period.  Consider then that the population of the world is projected to increase by another 28% between now and 2050 and that the income levels of the developing world are projected to grow the most rapidly, it would appear the potential for livestock expansion, and by extension the demand for increase grain production is tremendous. The Worldwatch Institute believes from the turn of the century to 2050 that in sub-Saharan Africa and South Asia alone, the demand for livestock products will have doubled[2].

There has always been a bit of debate as to feed conversion rates for animals but even just looking at poultry and pork, where we should see the largest increases in production numbers, it is generally assumed that it will require one and one-half to two pounds of grain to produce a pound of chicken and three to four pounds of grain to produce a pound of pork.  Cattle of course convert feed at a much lower rate but of course in many place around the world, ruminant animals will be raised on grasses, including for the production of dairy.  Regardless, the amount of grain demanded to feed this growing base of animals will need to increase in proportion. 

Domestically we are already witnessing the impact on the growing world trade in meat.  One of the presenters at the event was the Vice President and Chief Hedging Officer from Smithfield, the largest pork producer in the United States.  If you recall, in 2013 it was announced that this company was being purchased by the Chinese meat company Shuanghui and several investment houses including Goldman Sachs, who are all evidently positive about the future of world trade in meat.  Regardless, he pointed out that in 2014 exports for pork have increased 9.4% above last year, beef 7.9% and chicken 1%.  Considering that the actual pork production year to date is virtually unchanged but beef down 4.8% and chicken down .5% it is not difficult to understand the run up in values that we have witnessed at the retail counter.  One of the more interesting statistics that he quoted was from sales data from one of the major grocery retailers who reported that even with pork cutout values more than 26% higher than a year ago, demand has only slipped 1%.  Have we reached the point that meat demand has become inelastic in this country? 

One final tidbit of information that I found interesting concerns the second largest of the BRIC countries, that being India.  We generally do not think much about India and meat consumption, as 80% of the population is Hindu who believe the cow is sacred and pigs unclean.  Of course, the current population of India is estimated to be 1.237 billion people, which would mean that there would be nearly 250 million that could be potential consumers of these meats.  That represents  80% of the population of the United States.

Suffice it to say, if the projections for rising world incomes are correct, the outlook for Ag is extremely positive, unfortunately we have a period of realignment to work through before that is realized.

[1] USDA

[2] State of the World 2011: Innovations that Nourish the Planet


Morning Comments - Risk off for the weekend

Jul 18, 2014




Markets appear to have settled down after the extremely unfortunate disaster yesterday with the Malaysian plane in Ukraine.  While it is yet to be determined who fired the missile that that took down this plane, at a minimum we are confronting additional tension and risk and as such, markets will be unsettled. 

Looking out to next week, forecasts still call for a temporary warm-up in temperatures early but then by the end of the week back to more normal conditions with additional rains.  Russia did report overnight that due to the slow start to their harvest this year their total grain stocks stand at 11.1 MMT, which is down 12.8% from a year ago.  The overall wheat harvest is only 15% complete. 

Wheat values are lower in the morning trade, and we have nearly removed the "uncertainty risk" bounce from yesterday.  That said, with the weekend upon us I suspect, outside of hedge business, many will move to the sidelines and await development over the next few days.


The corn market was basically tugged around by wheat yesterday but ultimately gained little for the close.  As such, we really had little to surrender this morning either.  This market has moved into a fairly flat pattern now for the past week and currently sits just a smidge higher than we did on the close last Friday.  Evidently, we have factored in the negative news delivered at that time, which stands to reason as the corn numbers were really right around trade expectations anyway. 

While the general trade opinion seems to be calling for higher yields and production, there is still enough uncertainty with weather and a pick up in demand to stabilize values for the time being.  Of course the disaster yesterday just compounded the uncertainty.  While these factors may not be enough to force a rally just yet, they have at least given the bear reason to pause.  Keep in perspective that market corrections can also be accomplished with sideways action and unless we are presented with information next week that will actually force the bear from positions, the could very well just turn out to the resting point before we extend into lower lows once again. 


The bean market was also caught up in the uncertainly yesterday and extended their rebound but that turned out to be quite temporary and prices reversed lower into the close.  We have seen a little two-sided action overnight but as with the other commodities, I suspect other than hedge business there will not be many interested in taking on new risk in front of the weekend.

Beans are the one commodity with actual news this morning as the Chinese continue with a buying spree for new beans.  The USDA announced this morning that we sold an additional 116,000 MT to China overnight and 464,000 MT to unknown destinations. 

This market has taken reports of record acreage that was delivered a week ago today and actually worked higher ever since.  Granted the strong and consistent buying by the Chinese for the past week has provided a dose of demand support but could it be that until we have moved out through the critical August development period that the bulls will not completely surrender?  From a technical standpoint, the very short-term indicators are overbought but intermediate numbers are showing we could be poised for a rebound.  If we can hold stable for the first few days of next week, it would appear we could be set for just such a bounce. 


Morning Comments - The best cure for low prices is...

Jul 17, 2014




Although the gains were incremental the wheat market was able to close higher for a 3rd day in a row yesterday but that must have exhausted the would be bulls as prices pulled back a touch overnight.  We have stabilized again during the day trade but there is really not much positive news around so other than the oversold position of the market there was not much to sustain the strength just yet.

Rain coverage continues to increase across India, which of course should benefit all the crops they produce and lessens one factor that may have been a touch supportive.  Strategie Grain released updated estimates for European production and have boosted the wheat crop 660k MT, projecting a total crop of 147.7 MMT.  This is pushing 5 MMT above last year but they did note problems with quality in a number of countries.      

Many were expecting to see a nice boost in exports sales for all commodities this week with the lower prices but it would appear, would be buyers are not becoming overly anxious in wheat just yet.  For the week ending July 10th we sold 320,700 MT or 11.78 million bushels of wheat.  This was a little over 5% down from last week and compares with the trade estimates of 15 to 20 million bushels. 

I believe there still remains a possibility to experience a short covering bounce in the near term in wheat but with harvest progressing nicely across the Northern Hemisphere and any production issues already factored into the current price structure, headwinds will be stiff.


The last time December corn was able to gain a nickel or more in a single day was back on the 19th of June and while it was nice to see such a feat accomplished yesterday, it really accomplished little.  We did not even close above the previous days highs, which is actually something we have not been able to do since the reports at the end of June.

The latest weather runs remove the heat for next week from the outlook pretty rapidly and throw in a few showers for good measure, so if that were really a fuel for the buying, that flicker has been doused.  Realistically, it seemed a stretch to think we were in store for any extended heat with the pattern we have witnessed this year and the trade can go back to outguessing each other as to how big the production might be this year.  Strategie Grain also boosted the estimate for EU corn production, which they now expect to be 66.4 MMT compared with their previous estimate of 65.9 MMT. 

As I commented previously, the trade was looking for a pickup in export sales with the continued drop in prices and we did witness a nice bump this week.  For the 2013/14 crop year we sold 573,700 MT or 22.59 million bushels versus estimates between 10 and 14 million.  This was an increase of 58% over a week ago with major buyers of Japan at 246.9k MT, Columbia at 94.3k and Taiwan at 42.9k.  For the 2014/15 crop we sold 459,000 MT or 18.07 million bushels, which was just above the upper end of estimates and 20% above a year ago.  Time and again, the best cure for low prices is low prices. 

Ethanol continues to be a stellar performer this year as for the week ending July 11th we produced another 943 million gallons using approximately 99.7 million bushels of corn.  Additionally, stocks decreased 14 million gallons for the week.  I just returned from the annual Kansas City Federal Reserve Ag Symposium and if there were a bright spot from any of the topics it was concerning the production of ethanol.  One of the speakers was from a privately traded ethanol company and naturally you would expect him to have been positive for the outlook of his firm. That said, he pointed out that even though we have pushed against the blend wall in this country, increases in the world price of sugar and the continued high price of crude along the break in corn has placed US ethanol in a very competitive position in the export market.  Hard to ague with that reasoning at least with the current values. 

After struggling a bit overnight, we do have prices a into the green this morning but with the overall picture right now, it is difficult to look for much more that short-covering bounces for the foreseeable future.


November beans provided us with the first really definable rally since the end of June yesterday with a close up through the highs of the previous three sessions.  Prices did cool off overnight but have moved back into the plus column now in the day session.

I find is slightly curious that one of the reasons cited for the strength yesterday in beans was the forecast for warmer temperatures next week.  Unless we have developed a new strain of beans that I am not familiar with, I have always understood that beans need heat and sunshine as we move into the late July through August period. It would appear to me that with the ample moisture that we have, a warm sunny stretch would be just what the doctor ordered for the crop.  I would be more concerned if we do not see that happen over the next 30-days as we could end up with great looking bushy plants with nothing in the pods. 

No surprises in the old crop bean sales as we sold 37,700 MT or 1.385 million bushels.  This was down 33% from the prior week.  We did see an uptick in the 2014/15 sales but they were well within the range of estimates at 561,000 MT or 20.62 million bushels.  This was an increase of 6.5% over the prior week.  Of this quantity China purchased 365,000 MT and unknown destinations 149,500.  There are persistent stories that China is still actively seeking to purchase new beans.

As I commented initially after struggling overnight, beans have pushed into higher ground again and I continue to believe we have room for additional short-covering strength from here.  November futures should have room to push back against the gap levels at 11.30 but I suspect would need some kind of weather concern to move beyond there. 


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