EHedger Afternoon Grain Commentary 7-7-2011
Jul 07, 2011
Grains were stronger today after corn sale announcements were made before the market opened. 540,000 MTs of corn were sold to China and another 300,000 MTs to "unknown". December corn ended up finishing 7 cents higher at $6.15 ½, November beans up 19 ¼ at $13.37 ¾, and December wheat up 3 ¾ at $6.75 ½.
The sale announcement of 300,000 MTs of new crop corn to "unknown" is likely also going to China. If this is the case we have seen about 2 million bu of new crop corn sold to China over the last 2 weeks after this recent setback in the price of corn. This is still well behind many analysts who have been calling for up to 6-8 Million Mts. So even though this was headline purchasing, more of the strength may have also been attributed to a warmer/drier weather forecast. Crude oil and equities were also sharply higher today.
USDA REPORT NEXT TUESDAY:
The USDA Supply and Demand Report will be released next Tuesday. I have included our estimates for the supply and demand tables and where it places carryout for next year in the chart below. As you can see we put the new June 30th acreage report’s numbers in for 2011/2012 production and how they compare to the last S & D report in June.
You can see that I have factored in a drop in corn usage for ethanol by 100 million bu for 10/11 as well as Feed and Residual as more of that demand switches to wheat, also due to a jump in the June 30th stocks report. This would put a much larger number of 930 million bushels carried "in" to the 2011/2012 crop year for corn. And if we get a 161 yield, we could easily see corn carryout back above 1 billion bushel for next year.
For wheat we now have the ending stocks number of 860.7 million bu. Next year we expect to see feed and residual usage climb up to 275 bringing carryout next year down to 659 million bu.
For soybeans, we lowered exports down to 1525 this year and 1500 for next due to lower demand pace. Competition from such a large South American soybean crop has had a large impact on demand for US beans. We also plugged in the USDA acreage change down to 75.2 million acres. Even with the lower exports, this would bring us down to an extremely tight carryout situation of 160 million bushels.
Of course the yield fluctuations can have tremendously different outcomes for carryout at the end of the year. Right now the fundamentals seem to support beans and wheat over corn and it is a good idea to make sure you are covered. We still like selling corn rallies from here. Bean volatility is still very cheap and buying November bean options is a great way to hedge risk. Please call your broker if you have any questions.
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