EHedger Afternoon Grain Commentary 2-14-2012
Feb 14, 2012
Soybeans held the most strength for the second day in a row. March beans were up 3 cents and settled at $12.55. March corn fell 5 cents to settle at $6.33 ½, and March wheat fell 6 ¼ to settle at $6.35.
Soybeans continue to gain on corn. We have finally started to do some soybean export business. The market has started forcing people out of their bear spread soybean positions as well as the short beans long corn spreads. We talked in yesterday’s letter about the market trying to buy bean acres as well. So between the short covering and "bidding" for acres they have been able to keep beans more supported than corn recently. We also have wheat the same price of corn which is a factor keeping corn resisted. The fact that we have tons of wheat in the world and Australia just came out with a better wheat weather forecast. We have heard more stories of ethanol plants slowing and/or closing down production on poor ethanol margins and record ethanol stocks. We will have to see what the weekly report says tomorrow for production.
New crop corn is still expected to gain acres. I talked a little bit about the new crop corn/bean ratio which is at 2.23 today after being as low as 2.0 to 1 back in November. Eventually this could be a repeat of the 2007 growing year, where we came into the year with corn/bean ratio that was around 2.0 and ended that winter at about 2.83 (formula=beans/corn). Corn obviously needs to secure those extra acres first and we need to see a somewhat normal growing year. By our estimates the corn/bean ratio would have to get back to 2.3 to 1 for beans to start gaining acres again given current prices and cost of production.
The Chinese trade delegation is in town. The fact that they usually buy a large chunk of their soybean imports during this week has given the bean market a lot of optimism. This is usually a "buy rumor – sell the fact" type scenario and we will to see just how much they purchase.
South America is expected to get some needed rains next week, so I would expect the bean rally to start fizzling out this week without another catalyst. They’ve already priced in the demand, and the downside of the Brazilian crop. They have already priced in the corn gaining acres on beans. This is most of what the market likely needs to price in for now. This is the first time in several months that we feel new crop beans have as much downside risk as new crop corn does. Look to start hedging new crop beans at these levels as we are getting much closer to fair value. If you haven’t done much for new crop beans please give us a call, we have some strategies we can look at.
Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.