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June 2008 Archive for 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.

Volatility remains as corn closes at new contract highs

Jun 27, 2008
 
SETTLEMENTS
July Corn: 753 ¾ (+23 ¾)
Dec 08 Corn: 788 (+23)
July Beans: 1574 ¼ (+36 ¾)
Nov Beans: 1561 ½ (+36 ½)
July Wheat: 924 (+22 ¼)
Dec Wheat: 965 ¾ (+22)
July KC Wheat: 954 ¾ (+16 ½)
July Min Wheat: 1190 (+60 ¾)
July Meal: 421.2 (+11.0)
July Bean Oil: 65.66 (+1.45)


                 Corn opened higher and never looked back. It closed $.20 higher making new contract highs and contract high closes. This morning the export sales, which were a marketing year low were quickly ignored as corn surged higher throughout the day and even at one point traded limit up. Outside markets such as $4 higher crude, $30 higher gold, and a falling US dollar supported the higher movement in grains. In addition, Iowa had further rainfall across its ground leaving concern to expanded flooding across the state and along the Mississippi River into Illinois. While rain, in this area can still be very hurtful many other parts of the Midwest has welcomed rain, which will boost corn growth. Since the market has moved $.40 higher in two day it has put itself into an extremely volatile area ahead of Monday’s report. Most people are expecting the report to be bullish, looking for the USDA to cut corn acres from the March 31st Planting Intentions estimate of 86 million. The USDA is currently conducting a survey to assess the damage caused by recent flooding throughout the Midwest. The results will be included in the report next Monday. The USDA will also conduct another survey during July and those results will be included in the Aug.12 S&D report. However, we are at contract highs and need to determine how much higher we can go as we ration even more corn at these levels.
I don't have any idea what the report will say, but I would like to mention that there will also be a stocks figure on this report. I think there is a good chance that we see a bearish stocks number on the report. I know that no one is concerned with demand right now, but if the acreage number would happen to be larger than 86 million, people will start to care. I am not predicting a bearish acreage number, and obviously the corn crop has been hurt and will need all of the help it can get. I am saying however, that the mentality is that the report has to be bullish. I am just saying that going into the report long corn is not a "no-brainer"; we are at $7.50. These uncertainties should create additional volatility as we head forward. The Sep. calls that we bought will help cover your sales through the end of July. By then we should have a much better idea on the crop size. Make sure that you lock in your cash price on forward contracts.
Soybeans opened strong and closed sharply higher. The same outside influences that supported corn also supported soybeans. In addition, uncertainties still remain surrounding Argentina and a higher crude market led to soy oil gaining close to $1.50. Most of the recent market talk has been focused on the loss of corn acres and the problems we have experienced in that commodity, however, do not forget about soybeans. We continue to sell too many beans for this summer, and the cash market has started to reflect this. We will get a stocks number next Monday, and this will be very important. The cash market has turned up for both soybeans and soybean meal in recent weeks, and it is becoming more apparent that the soybean and soybean meal supplies will be very tight at the end of this year. We have been selling both soybeans and products to make up for Argentina. The market has been expecting Argentina to come back online and "bail us out" later this summer. The problem with that theory is that we have already sold too much. The cash meal market has rallied significantly over the past 30 days and meal receipts continue to be cancelled as we head into 1st notice day. Our exports may fall off (as they should!), but our domestic supplies may end up being much tighter than the government currently has forecasted. The soybean market has been the laggard throughout the rally as people still expect lost corn acres to turn into additional soybean acres. As I have said before, this might not be the case. There are still many areas that have not finished planting/re-planting soybeans. Not only are we running out of time to finish planting, but we are losing significant yield potential as we head into July. So far, the market has been focused on the corn market. Most market letters speculate on how many corn acres have been lost and how low the yields could fall below trend line. However, very few have talked about how many bean acres could be lost, or how soybeans yield 50% when they are planted in July in many cases. The market could become very concerned with the crop size shortly after the report.
Today’s wheat trade was almost an exact duplication of yesterday. The Wheat market traded sharply higher and showed strength the entire day. However, unlike yesterday, wheat set new recent highs since April and eclipsed the $10 mark in Chicago July 09 and 10 contracts. The market has realized that the world is going to be extremely tight in corn and beans this year, so they are buying into wheat as well as a feedstock. This trend can certainly continue with corn and beans leading the way. Yet be mindful that we are entering wheat harvest and expecting a large crop. Once the buying subsides we could break wheat lower off of large supplies. In addition, the market continues to liquidate speculative shorts, as no one wants to enter Monday’s report heavily short anything. If the corn market does not rally from after this report, wheat could easily break $1 or more from here. If the corn market steps into another hole and rallies sharply from these levels, wheat could follow. In this case, the market could feed much more wheat in order to make up for corns shortfall. Look to buy back calls on a break back towards $7.50 in the Dec. contract.
 
Stocks estimates for 6/30 report
 
 
Wheat
Corn
Soybeans
Average trade estimate
0.275
3.894
0.663
Highest trade estimate
0.461
4.000
0.720
Lowest trade estimate
0.247
3.550
0.615
USDA June 1 2007
0.456
3.533
1.092
USDA March 1 2008
0.710
6.859
1.428
 
 
 
Acreage estimates for 6/30 report
 
 
Corn
Soybean
All Wht
Spr Wht
Durum
Average trade estimate
85.661
74.257
63.808
14.306
2.628
Highest trade estimate
87.399
76.000
64.000
14.500
2.700
Lowest trade estimate
83.500
72.000
63.530
14.000
2.505
USDA March 2008
86.014
74.793
63.803
14.333
2.630
USDA 2007 final
93.600
63.631
60.433
13.297
2.149
 
  
 
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Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. 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 E Hedger, its affiliates, officers, directors, employees, or agents. Recipients assume the risk of reliance on and indemnify and hold E Hedger harmless for any and all losses, costs, or tax consequences incurred as a result of their use of market information.
 
 
 
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