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EHedger Report

RSS By: Dustin Johnson

Dustin works with a wide net of large producers throughout the Midwest. His analytical market approach and objective hedge strategy development is specific to the needs of every individual.

Friday Weekly Grain Wrap-Up 4/23/10

Apr 23, 2010

Corn closed 9-cents lower on the day and 11-cents lower on the week. Short-covering, good end-user buying and “new money” buying helped support corn throughout the week. However, ideal planting conditions throughout the Midwest has helped many producers plant corn at a record pace and this eventually weighed on prices this week. Many producers have reportedly finished planting corn this week and have started on soybeans! Two rain events are supposed to impact the Midwest in the next 10-days. The two events should drop 0.75-3.00 inches over 100% of the Midwest. With such an ideal start to the growing season, it will be hard for corn to hold on to any large rallies. It will likely take a weather problem to help move corn prices higher from here. Although corn demand is strong right now, we are in a supply bear market for now.  

Soybean closed 4-cents lower on the day and 15-cents higher on the week. The soybean market continues to be led higher by money flow and Chinese demand. The Chinese continue to support local prices ahead of planting. This support continues to incentivize the Chinese crusher to import cheaper soybeans. The Chinese government is also supporting their local pork prices to help pork producers deal with high feed prices (also caused by the Chinese government!). These support programs are keeping Chinese soybean imports very high. Ironically, South America is running out of storage capacity. Bin-buster crops are being stored under tarps until they can be exported. The poor infrastructure and extremely large crops has made transportation costs skyrocket. Eventually the record supply in South America will reach China, but right now transportation is the limiting factor. I still believe this is creating a very good opportunity for the U.S. producer. Once the large global supply is “moved around” prices look sharply over-valued. Soybean oil and soybean meal are being supported by export demand as well. Domestic demand remains very weak and without this demand prices should struggle. Strong ethanol production is creating a lot of DDG’s. DDG’s are running about 1/3 the price of soybean meal and this will hurt soybean meal demand. The biodiesel industry is not much better. Without the blender’s credit, soybean oil supplies continue to build. Argentina is the world’s largest exporter of soybean meal and soybean oil in the world. After having a very small crop last year, the U.S. had to make up for this lost export capacity. With a huge crop in Argentina this year, this export demand will also slow significantly. Once this happens, it will be up to our domestic demand to determine the soybean “crush”. I highly recommend taking advantage of current prices. Option volatility remains very cheap and is providing a very unique opportunity to purchase puts and calls for very reasonable prices. Please call if you need any help.
 
Wheat closed 5-cents lower on the day and 3-cents higher on the week. Short-covering was the main “theme” in the wheat market this week. Traditional funds are still holding record short positions and we have been seeing some unwinding of this. Both U.S. and global fundamentals remain bearish and this should eventually help move prices lower.   Export demand remains weak as global supplies continue to undercut U.S. prices. Cheaper corn prices should also continue to weigh on wheat prices here in the U.S. The HRW crop is in some of the best conditions ever while the SRW crop is struggling. There continues to be stories of producers tearing up wheat fields and planting corn and soybeans instead. Cheap cash wheat prices, poor crop conditions and high corn and soybean prices are making the decision easy for some. How widespread of an occurrence is hard to tell, but it is something that could help SRW prices down the road. Wheat acres are also declining in Canada, Australia and in other areas throughout the world in favor of planting higher-priced oilseeds. Eventually this trend should help wheat prices relative to oilseeds, but right now global supplies are just too high.  


 
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