EHedger Afternoon Grain Commentary 10/8/12
Oct 08, 2012
Grains were mixed for Columbus Day. December corn closed 6 cents lower at $7.42, November soybeans ½ cent lower at $15.51, and December wheat up 3 ½ cents at $8.61.
The USDA was closed for the holiday which means all sale announcements, export inspections, and crop progress were delayed until Tuesday. The lack of any fresh news left grains following the outsides. The US Dollar Index was higher while stocks and crude oil were lower.
The market is focused on the upcoming October Supply and Demand report this Thursday. Last week FC Stone and Informa released their estimates which were generally considered "bearish". This week we have the Reuters’ poll results from 28 agricultural analysts. On average they are estimating corn production at 10.601 billion bushels (122.884 average yield). They are estimating soybean production at 2.759 billion bushels (37.006 average yield). There is a massive range between the high and low estimates which could result in high volatility on report day.
The soybean demand estimates have been dramatically reduced by the USDA since May, but we haven’t seen the actual demand pace show any signs of weakness. Virtually all of the analysts in the survey are looking for soybean production to increase, the question is will it outpace the demand? The real demand question revolves around China and the record pace they have set for contracting US soybeans. Have they stacked most of their 2012 bookings up front or is the actual export demand going to be well above the current USDA projections? For Thursday we assume that any ‘reasonable’ increase in soybean production will be offset by increasing the export demand estimate. This would give the USDA a little more demand room for the export estimates leaving the carryout mostly unchanged from September.
After seeing Informa’s estimates on Friday I figured that the average private estimate of corn production would come in higher than 10.6 billion. Is an average yield estimate of 122.9 an adequate representation of the actual market’s expectations and current trading models? If this is the case and everyone is stacked in one bullish direction it may set the stage for a disappointing report day for the longs. Obviously if we see another production reduction from the USDA this will most likely result in another move higher but I would not discount Informa’s estimate. We are now just past a quarter of the way through setting the fall crop insurance price level. So far the average corn price for October is $7.53 and the average soybean price is $15.46. We want to stay in sustainable hedges through harvest. To sign up for a free EHedger trial please click on the link below. Have a great week!
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