Morning Comments - Finally a little stability
Jun 19, 2014
Rain rain go away, come again another day. Preferably just after wheat harvest and just in front of corn pollination. It would be great if we could make such an order but we know that is not how it works and there would be too great a temptation to ask for less than ideal crops for others, and they might be doing the same. The onset of warmer temperatures have brought along additional violent storms across the upper Midwest providing more than ample moisture and disrupting travel for many. I was trying to return from Tennessee yesterday afternoon and what should have been a simple one hour flight turned into a fourteen hour journey, with additional unplanned stops in Dallas and Omaha. The 6 to 10 day outlook is offering cooler temperatures through the heart of the country and pushes much of the moisture south if I-70 and into the Delta. The 8 to 14 forecast keeps moisture to the south and east, which would move us to the 2nd of July.
Ukraine issued updates for the marketing year exports and report that beginning on July 1st last year through the 18th of June they have moved a total of 31.817 MMT of grains. Of this total 9.29 MMT has been wheat and 19.92 MMT corn. Comparatively, for the entire 2012/13 marketing year they moved 23 MMT of grain. Granted, they also produced a short crop that year but it does highlight the increased competition coming from the Black Sea region this year.
Export sales were towards the lower side of expectations at 13.7 million bushels but right at the average pace we will need to reach the 14/15 target of 925 million bushels. Needless to say, there is not much to make of the number being only two weeks into the marketing year.
Wheat harvest continues to push further into Kansas but reported yields remain disappointing. While this should come as no surprise, it was one of the reasons given for the rebound in prices yesterday. While I suspect that was a factor, with funds now sitting short, daily indicators is a very oversold position and seasonal lows due, I believe we may just be running out of sellers. If that is the case, a short-covering bounce should be in order as we move into July.
As I commented above, we appear to have had more than sufficient moisture throughout much of the upper-Midwest and while for some, there has been too much of a good thing and has created nuisances for travelers, it really leaves the vast majority of corn in excellent condition. The current NOAA forecast take us up to the 2nd of July and if the slightly cooler and moist predictions are correct, the corn crop will have experienced little to no stress right up to pollination, which should be a recipe for exceptional yields. There have been some talking about pushing the national yield to as high as 180 but at 92 million acres, even with ideal weather I suspect that is a stretch. That said, pushing 170 would not seem out of the question.
I have had the opportunity to speak with several people in the industry recently about the upcoming acreage report and I heard numbers between 92 and 94 million acres bantered around. Yes, we most likely lost corn ground in the Minnesota, Michigan and the Dakotas but the consensus seems to be that will have been more than compensated for in the middle of the belt. Keep in consideration as well, if correct, that should also bode well for above average yields nationwide. The March estimate called for 91.7 million.
The weekly EIA ethanol numbers were a positive surprise yesterday as we set a new weekly record of 972,000 barrels a day. The previous high water mark was set in December 2011 at 963,000 barrels a day. This equates to around 102.8 million bushels of corn, which of course is substantially above the year to date average of 95.55 million per week. Simple economics at work. The industry is enjoying solid margins and corn is available so you grind every bushel you can. Weekly ethanol stocks were actually lowered by 24 million gallons.
I have commented previously this week that for now end users are in the drivers seat and can allow prices to come to them, which appears to be reflected in the export sales figures. For the week ending June 12th, we sold only 109k MT or 4.3 million bushels. The trade had been expecting something between 12 and 20 million bushels. Year to date we have now sold 1.837 billion bushels and need to average 5.7 million per week for the next 11 weeks of the year to reach that target. As a reference point, last year at this time, we had sold just 693 million bushels.
I would like to think that the action in the corn market over the past week is indicative of the development of a reaction low but we still need to see at least another one to two weeks of sideways congestion trade to build up much confidence. I suspect we should be in store for such at least into the June 30th reports.
As I commented yesterday morning, the nearby bean market had pressed down to good initial retracement levels, not to mention the psychological 14.00 mark with indicators quite oversold and was ripe for setting up a corrective low. While I cannot say that we have actually confirmed such as of yet, a sale of 140k MT of old beans yesterday helped lift prices higher. I understand this sale is for late August and possibly early September delivery so may actually occur in the new crop but it still came as a bit of surprise. As I commented also yesterday, we cannot afford to stimulate new demand for old crop beans, which is why I did not believe we were in for a rout to the downside just yet. While the break of $1.43 we have just experienced over the past 18 sessions may seem like quite a lot, it is not quite 10%. Through this week spot corn has broken 16% and spot wheat 21.5%.
Export sales were in line with last week and at the upper end of estimates at 97,900 MT or 3.6 million bushels. The key element here is the number remains positive and we now stand at 59 million bushels above the target of 1.6 billion. Sales for the 14/15 marketing year were 10.5 million bushels. For every new bushel we sell, the more critical the grain stocks number on the 30th becomes.
That said, this still does not explain the stability in the November futures. Granted, if we roll forward existing sales there should be very solid demand for new inventory but with the potential for another 500k or more planted acres and what appears to be a great start for production, the doomsday clock for the bull would appear to be moving ever closer to the zero hour.