Jul 13, 2014
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Cash Grain Insights

RSS By: Kevin McNew, AgWeb.com

Kevin McNew is President of Grain Hedge and Geograin. McNew was raised on a farm in central Oklahoma and received his bachelor’s degree from Oklahoma State University, and master’s and Ph.D. degrees in Economics from North Carolina State University. For over a decade, he was a Professor of Economics at the University of Maryland and Montana State University, focusing on commodity markets. He has received numerous academic awards for his research and outreach work, and was (and still is) widely regarded for boiling down complex economic issues into easy-to-understand concepts for applied life.

 

USDA REPORT REACTION

Jul 11, 2014

Grains are continuing lower after this morning’s USDA report. Corn is down 9 cents and soybeans is trading 20 cents lower for the new crop contracts. This report was generally in-line with expectations for soybeans, but 2014/15 corn ending stocks were roughly 25 million bushels above trade expectations.

Old crop corn carryout was raised 100 million bushels, bringing 2013/14 carryout to 1.246 billion bushels. 2014/15 production was lower 75 million bushels as planted acres and harvested acres were lowered from the June report slightly. Yield was left unchanged at 165.3 bushels per acre. On net, supply for 2014/15 was raised 25 million bushels as a result of larger old crop carryout. Feed and residual use was down 50 million bushels and all other demand side numbers were left unchanged. On net, 2014/15 ending stocks were raised 75 million bushels to 1801 million bushels – 25 million bushels above trade expectations coming into the report. The USDA did not aggressively increase demand numbers for 2014/15 as some traders had expected coming into the report. Overall negative report for corn and we are now testing technical support at $3.80. Adding to the bearish sentiment was world corn ending stocks which were raised 5.4 million metric tons (3%) from the June report.

 

The old crop balance sheet was one of the items that fueled soybean selling in the wake of the USDA supply and demand report. Ending stocks jumping 15 million bushels from last month’s report catching some traders off guard and triggering selling throughout the soybean complex. The ending stocks increase was primarily driven by a negative residual number of -69 million bushels. In the last 21 growing seasons and most likely further back than that we have only seen one year with a negative residual number and that was the 2011/12 growing season when we recorded a -2 million bushel residual. We did have an increase in both crushing’s and exports by 25 million bushels and 20 million bushels respectively to eat through some of the beans but ending stocks were raised to 140 million bushels in the end. This has weighed heavily on the bull spread between August and November futures.

New crop soybean ending stocks missed analyst expectations, showing 415 million bushels instead of the anticipated 418 million bushels. The difference was not significant enough to cause any kind of bullish move and the market quickly sold into the report. The USDA revised total supply up 180 million bushels over the June report and increased demand a bit over 4% adding 40 million bushels to crushing and 50 million bushels to export sales. Overall this is a report met trade expectations for 2014/15 ending stocks. World soybean ending stocks were raised by 2.43 million metric tons, but this was almost entirely made up of increases to US ending stocks. Overall a neutral report for soybeans but the argument can still be made that $10.70 futures will not hold through harvest with ending stocks at 415 million bushels for the upcoming marketing season.

Pre-WASDE Report

Jul 11, 2014

 Alert: USDA Report out at 11:00 AM Central Time today


Markets are trading sideways coming into today’s USDA report. At the moment we see corn up a penny, soybeans up a penny and wheat unchanged.  

With the crop good-to-excellent ratings on soybeans at a 20 year highs, yield will likely be left alone from the June report. This means 14/15 soybean supply is likely to come out 169 million bushels over last month's WASDE report and up 425 million bushels from last year. The average analyst expects ending stocks to be reported at 418 million bushels which would imply that demand would increase nearly 76 million bushels from June's report, less than half the expected supply increase. Looking back over the last 14 years we would expect the majority of the demand gains to come from exports which responds more readily to large changes in supply and price. In 2006/07 when supply increased 10% year-over-year, export sales made up nearly 3⁄4 of the demand response to the increased production. In 2009/10, another year with a 10% increase in supply, we saw export sales account for 70% of the demand response year-over-year. 

 

Trade estimates for 14/15 U.S. soybean ending stocks do not factor in a robust response from the demand side as seen in 2009/10 or 2006/07. This sets up the soybean market to possibly miss demand expectations in the report report today in a way that could provide some strength to the market following weeks of sharp selling. However, we feel any bounce should be used as a pricing opportunity as the long term fundamentals look undoubtedly bearish. During the 2006/07 marketing year prices approached $9.00 per bushel and looking back to 1975 soybean prices have found support around the $9.00 per bushel level. These historical benchmarks are important as we enter a very different marketing year from what traders have become accustomed to in recent growing seasons.

 

Traders expect the USDA to add 48 million bushels to new crop corn ending stocks, bringing the total for 2014/15 to 1.774 billion bushels. This would be the largest carryout since the 2005/06 growing season as yield is expected to make up for a relatively small acreage figure. 75% of the crop remains good-to-excellent and with each passing week of near ideal weather the "pollination weather premium" is leaving the market. Trend-line supports sits at $3.80 looking at the daily December 14 corn chart. Looking longer-term we would expect support around $3.25 on December futures based on price action from 1975 to present. This market has already sold off substantially but it is important to look at the big picture when pricing grain coming into today’s USDA report. This month's sell-off has been dramatic on the daily corn chart but is a relatively small move when looking over a longer time frame.

Market Higher in the Overnight

Jul 10, 2014

 Alert: USDA report out at 11:00 central time tomorrow

 

Grains markets are finding some strength in the overnight session. Corn is up a penny, soybeans up 6 cents, and Chicago wheat moving 4 cents higher. This move higher looks largely technical, as this morning’s export sales report largely met trade expectations. 

 

 

Yesterday’s ethanol production report showed that production was down week-over-week at 927,000 barrels per day. Stocks continued to grow and are once again at levels seen in early 2013. Seasonally we would expect ethanol crush to slow from July moving forward, but crush margins remain very strong relative to the last 5 years. Basis opportunities continue to exist at ethanol facilities across the grain belt, even as corn basis has sagged in recent days.

 

September corn has now been trading below four dollars for two full sessions. Bearish sentiments continue to weigh on the market in recent weeks as open interest continues expanded in Tuesdays down day, indicating that new short positions are being added. Forecasts continue to show ideal weather looking out two weeks as the crop enters a critical yield determining phase of pollination. Also weighing on corn was the announcement out of Brazil yesterday that it’s better than expected corn yields are expected to produce 78.2 million metric tons compared to last month’s estimates of 77.89 million metric tons.  


Fridays report is will be focused on soybean demand revisions for the 2014/15 crop after the June 30th report showed acreage 3.6 million acres higher than last year. With the crop conditions for soybeans at a 20 year high it is expected that 169 million bushels could be added to total supply since just last month’s WASDE report and up 425 million bushels from last year.  Traders will be watching how the demand numbers are adjusted with surge of supply hitting the market this fall. The average analyst expects ending stocks to be reported at 418 million bushels which would imply a demand increase of nearly 76 million bushels from June’s report. Much of the demand increase is expected to be seen in the export column which seems to be more responsive to large supply increases.  


Export sales this morning came in slightly below trade expectations for wheat only booking 338,100 compared to expectations of 400-635 thousand metric tons. Corn met expectations booking 363,000 metric tons of old crop corn and soybeans met expectations adding 56,300 metric tons of soybeans to old crop sales. This morning the USDA announced that 60,000 metric tons of old crop soybeans was sold to unknown destinations which was part of a larger 126,000 metric ton reportable sale which also included new crop soybeans. China also purchased 118,000 metric tons of new crop soybeans in the same announcement this morning. Prices for old crop soybeans have fallen nearly $1.33 in the last week and a half which should start to trigger some buying interest from importers. 

Export Sales Reported as Prices Slide

Jul 09, 2014

 Grain futures drifted lower in very light overnight news. No change in the 6-10 day forecast and little demand side numbers to report. Corn is down 3 cents, soybeans are down 6 cents, and Chicago wheat is off 3 cents.

Friday, July 11th, will bring the July USDA report. This will be the first report to use planted acreage expectations from the June 30th Planted Acreage report. That report shocked the soy complex, with 2014 acres projected at 84.8 million acres. Traders expect soybean carryout to be projected at 418 million bushels in the coming marketing year. This market has sold off significantly since June 30th, but a 400+ million bushel carryout implies there is still great downside risk in this market. Next area of technical support lies at $10.95 on the November 14 soybean contract.

 

Grain export sales have been being reported on a relatively regular basis as prices continue to ratchet lower. This morning two reportable U.S corn sales were sold to Japan (101,600 MT) and unknown destinations (107,696 MT) for new crop delivery. Also, Egypt’s GASC issued a tender yesterday for 55,000-60,000 metric tons of U.S wheat, Ukrainian milling wheat, Russian milling wheat and Australian standard white wheat. The price of Chicago wheat has dropped sharply since May 9th when the local U.S supply concerns were eventually trumped by growing global stocks. Since the open of trade on that Friday, the September wheat contract has fallen $1.89 cents.

 

Crop Conditions Weigh on Market

Jul 08, 2014

 Grain futures are trading mixed following Monday’s sharp selling. Corn is unchanged, soybeans down a penny, and Chicago wheat off 2 cents. News in the overnight session was very light following yesterday afternoon’s crop conditions report. 

 

The USDA released crop conditions yesterday afternoon which showed little changes from the previous week. Corn is still rated 72% good to excellent while soybeans held steady at 72% good to excellent. At this week in the growing season this is the highest rated corn crop in 15 years and the highest rated soybean crop in 20 years. Winter wheat is now 57% harvested and the spring wheat crop is rated 70% good to excellent. The 6-10 day forecast from Planalytics is showing wet conditions across the eastern corn belt and dryer conditions in Iowa, Minnesota, and North Dakota. Mean temperatures should be cooler than normal beginning July 13th, just as a large portion of the corn crop will be silking. In yesterday’s report the USDA showed 15% of the corn crop in the silking stage.

 

Saskatchewan and Manitoba farmers incurred damage to both newly planted fields and stockpiled grain as heavy rains of up to 10 inches soaked and flooded Canada’s main growing region last week. Estimates on the total damage ranged significantly with some analyst guessing 1 million acres ruined while others suggested up to 6 million acres of crops were ruined across Canada due to the excessive rain this season. Much of the Eastern Saskatchewan and Western Manitoba recorded record amounts of precipitation since April 1st leaving many farmers with flooded and damaged crops. This year Canadian wheat crops are well behind their normal development due to the cool and excessively wet weather this year.  

 

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