Today in the Grains and a Look Ahead to Friday
Mar 26, 2012
The grain and soy markets are preparing for a big week, ending in a final crescendo on Friday with one of the most highly anticipated USDA reports of the year. Like many traders, I am of the belief this report will set the tone for the remainder of growing season. There are a lot of questions up in the air right now, and I would assume this report will give the trade a better idea of where the USDA is headed. Here are a couple of the more popular questions the trade is looking to have answered, I will be giving more highlights through out the week:
- Corn Acreage Estimate - The USDA Outlook number of 94 million is probably too low. I am guessing we are closer to 95 million corn acres or maybe even a hair higher.
- Corn Stocks - Now here is a real "wild-card," I guess if I had to throw out a number I would be around 6.2 to 6.3 billion bushels, certainly tighter than last year, but not as extreme as in 06/07. There are many now talking about a sub-6 billion number, but I am not in this camp. I am thinking the average guess is just over 6.2 billion.
- Soybean Acreage Estimates - I am still thinking we push higher than the 75 million acres from last year. 76 million soybean acres would not surprise me.
- Soybean Stocks - We were at 1.25 billion last year, it seems like now most are looking for a jump to 1.35 or even 1.40 billion bushels
- Wheat Stocks - It sounds like we should see a number between 1.2 and 1.3 billion bushels no big surprise thought to be coming down the pipe.
Soybeans continue to play the lead role. Because of the South American production losses, the world wants to see more US soybean acres. The trade believes 75 million acres simply will NOT do the job. 76 million is certainly a possibility, just as I have insinuated all along, but 78-79 million, in my opinion, is out of the question. Therefore the trade is trying to find the magic price that will actually encourage more acres and at the same time ration back demand. How high will prices need to push to entice China to dump more domestic supplies on their marketplace? How soon before they try and cool export demand? The trade continues to throw out ideas that soybeans could eventually push to a 3:1 ratio to corn. That could be something like $15 soybeans and $5.00 corn. Beans have certainly done an amazing job of gaining on corn the past several weeks, in fact the Long SX vs. Short (2) CZ corn has returned about $1.80 ($9,000) per unit since the end of January. My gut tells me we may be in for a little setback or profit taking ahead of the report on Friday, but I would suspect after the release we should start to see some renewed and extended interest jumping back into the the long soy vs. short corn type strategies.
*With the funds now holding a record large long position in soybeans and almost a record long short position in CBOT wheat, we are certain to see some extreme volatility this week. If you look back to last years' charts you will see that both corn and soybeans rallied big off the USDA's end of March numbers. Personally, I believe we will see some extensive position squaring this week heading into the numbers and I am afraid it may produce some extremely wild rides in the "spreads." The weather forecast here in the US should soon start gaining more attention, but for this week all eyes firmly remain on Friday's USDA data. As producers make certain you are comfortable with the risk you have on the table heading into the report. Get caught up with your sales and have appropriate hedges in place. Specs should scale back in size and prepare for extreme equity swings.
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather. I know as a producer, you may have questions as to how this pertains to your farm and your marketing. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow." Just click here -