Walsh Commercial Hedging 5/8/12
May 08, 2012
Good afternoon. With the U.S dollar higher the whole day and the stock market down triple digits throughout the day, grains held their ground while soybeans continued their downward trend. July wheat finished up 3 at 615. There was a slight deterioration in the winter wheat condition from yesterday’s crop progress and talk of short-covering today helped support wheat today. July corn finished up 3 cents at 623 and new crop corn was up 3 ¼ at 528. Corn was supported on talk of potential strong demand from China, a lack of deliveries against the May contract, and a continued strong cash market. Ideas that the USDA will tighten ending stocks for the 2011/12 season on Thursday helped to support the rally in July which made a high of 632 before outside markets and soybeans put pressure on them, while talk that ending stocks for the 2012/13 season will sharply recover to near 1.7 billion bushels and coupled with a favorable weather outlook is keeping December corn in check.
July beans finished 27 ½ lower at 1438 ½ and new crop November beans settled 13 lower at 1340 ½ on traders exiting their long beans/short corn spreads. News that China bought 225,000 tonnes of U.S soybeans which included 60,000 for the 2011/12 season and 165,000 for the new crop season couldn’t offset the negative tone from the outside markets and the overbought condition of the soybean market. The reversal last week and news of a record high net long position in 5 out of the past 6 weeks from the COT reports are negative factors the bean complex is facing.
Listed below are the estimates for Ending Stocks for Thursday’s report:
Wheat Corn Soybeans Wheat Corn Soybeans
Average Trade Estimate 0.778 0.749 0.214 0.782 1.714 0.164
Highest Trade Estimate 0.800 0.801 0.250 0.916 2.072 0.250
Lowest Trade Estimate 0.756 0.660 0.165 0.609 1.209 0.087
USDA April Estimate 0.793 0.801 0.250 N/A N/A N/A
The big number that stands out to me is the corn 2012/13 ending stocks. The last time total ending stocks was anywhere close to these levels was in 2009/10, when ending stocks were 1.708 bi/bu. The average farm price was $3.55 bushel in 09/10. However, corn use for 2012/13 is expected to be larger than in 09/10 so it’s more important to keep an eye on the stocks/use ratio. The ratio in 09/10 was 13.1%. Ending stocks of 1.7 billion bushels would correspond to a ratio of about 12.6%. The last time the ratio was 12.6% was back in 07/08 and farm prices were $4.20/bushel.
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