EHedger Afternoon Grain Commentary 3-1-2012
Mar 01, 2012
Soybeans were the upside leader today with New crop finishing 5 ¼ cents higher at $12.94 ¼. December corn finished 1 ¾ cents lower at $5.66 ¾ and July wheat finishing 4 ½ cents lower at 6.76.
Soybean strength is still fueled by the concern of production cuts in South America. It will be interesting to see if the USDA reduces their production estimates on the March 9th Supply and Demand report and if so by how much. The Feb USDA soybean production estimate for Argentina was 48.0 MMTs and 72.0 MMTs for Brazil. This is an overall 4.5 MMT decrease from the Jan report. Some of the numbers we have been hearing have been calling for another 6-8 MMT decrease in production which may be enough to set the market up for disappointment on report day. From what we have been seeing rains have been timely and favorable for many of these areas to close out their growing season and such a significant drop in production seems unlikely. We will have to wait and see how they come in.
May corn is still holding resistance below the trendline which started back in November (see chart). December corn is having a very similar pattern keeping it resisted.
Chart: May Corn
Chart: December Corn
The Weekly Export Sales Report was out this morning. Here are the results:
Estimated Range Actual
Corn 650,000 – 850,000 MTs 716,000 MTs
Wheat 500,000 – 700,000 MTs 509,100 MTs
Soybeans 400,000 – 800,000 MTs 976,400 MTs
Source: Reuter’s Poll
The Spring Federal crop insurance prices are set at $5.68 for corn and $12.55 for soybeans. Now that these prices are set we want to make sure we have adequate downside coverage between your crop insurance, cash sales, and futures/options positions. The month of March will be extremely important with the Supply and Demand report on the 9th, but more importantly the Planting Intentions report which is on the 30th.
November soybeans have gained quite a bit back on corn (relatively speaking). Even with this move we believe corn acres will still be in that high range near 94 million acres. We see soybeans gaining about a million acres bringing our estimate to 76 million. We expect the market to add back in up to 9 million acres in the US and 6 million acres in Canada that didn’t get planted last year due to weather issues. Cotton and spring wheat prices are likely to get "outbid" on additional acres by corn and beans due to the price advantages in the market this year. The USDA is forecasting a 1.623 billion bushel carryout for corn and 209 million for soybeans. These estimates are AFTER increasing demand sharply from last year. We certainly think demand may increase, but it will be AFTER the prices drop. In our opinion we are trading at very good prices compared to where we could be next fall if we get a normal growing season. Corn getting back to $4.50 and beans under $10 isn’t so hard to believe with the potential production of this year. Also, the ethanol report again showed an increase in stocks and a decrease in production which isn’t a great trend outlook from a demand perspective. We also have to remember that this is all at the same time that the specs are loaded up with net long positions.
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