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December 2012 Archive for Standard Grain

RSS By: Joe Vaclavik

Joseph Vaclavik is the president at Standard Grain in Chicago. Standard Grain provides futures and options brokerage to farms, feedlots, elevators, processors, end-users and traders. Visit www.standardgrain.com for more information.

 

Corn Below $7.00

Dec 20, 2012

 The corn market is trading at new multi-month lows in nearby contracts, and below the $7.00 mark in all contracts this morning.  After trading above $15.00 just earlier this week, the January soybean contract has sold off sharply, losing near 80 cents from Monday’s highs.  The March wheat contract broke the $8.00 barrier overnight.  Nearby corn and wheat are trading the lowest levels since July; Dec ’13 corn is exploring the lower end of a recent trading range and looks poised to test the $6.00 area.  A significant winter storm is moving across much of the country this morning; much of IA, WI, MN, IL, IN, MO and OH will see good rain or snow amounts.  Some areas in the northern Plains saw activity while the southern Plains continue to suffer.  From a technical standpoint, yesterday’s close in old crop corn told the tale.  The charts saw a major downside breakout which is resulting in margin call selling and likely new speculative selling this morning.  Some talk this morning is revolving around the idea that China may be wrapping up US soybean purchases for the time being, and that the country will focus on procuring South American supplies this coming spring and summer.  Brazil has seen no major weather problems and is off to a good start; Argentina saw planting delays which may ultimately result in more soybean acreage. 

      Informa released updated acreage estimates for 2013 yesterday.  Corn acreage was pegged at 99.03mil vs. their previous estimate of 97.7mil.  Soybean acreage was estimated at 78.96mil vs. 80.1mil previously.  Winter wheat acreage was seen at 42.198mil vs. 42.5mil previously.  We can’t argue with the upward revision in corn acreage, as economics continue to favor corn heavily vs. soybeans from a producer’s perspective.  Winter wheat acreage is likely lower on dry conditions across the Plains.

      South Korea announced a tender for 220,000mt of corn for May/June shipment.  The tender notes that the corn cannot be of US origin as prices are too high relative to both EU and South American supplies. 

 

Weekly Export Sales this morning at 7:30am CST, pre-report estimates:

·         Corn       250,000 – 550,000mt

·         Soybeans   650,000 – 850,000mt

·         Wheat      450,000 – 650,000mt

Cattle on Feed tomorrow afternoon at 2:00pm CST, pre-report estimates:

·         On Feed Dec 1     93% (95% previous report)

·         Nov Placements    91% (87% previous report)

·         Nov Marketings    100% (103% previous report)

Look for heavy liquidation from funds and specs early today.  As the holidays approach, volatility could actually increase as liquidity dries up.  Nearby corn contracts hold the most downside risk in our opinion as stale longs exit the market.  This is the first trade below $7.00 in March corn since July, and we believe that longs had become far too comfortable.  There is a chart gap at $6.83 ½ on the March corn chart, an area that will likely be the initial downside target on today’s break. 

www.standardgrain.com   

Wednesday AM Grain Update

Dec 12, 2012

       The grain markets are lower this morning in the wake of yesterday’s USDA Crop Production report.  The wheat market was the big mover on report day, posting big losses across the board.  The March Chicago contract saw a chart breakout to the downside after trading within a trend channel for several months.  The USDA cut their projections for wheat exports by 50mil/bu and consequently increased their projection for 12/13 ending stocks by 50mil/bu.  World wheat numbers were bearish as well; projected world carryout increased by 1.5%.  The government left the domestic corn balance sheet unchanged and revised the world carryout slightly lower.  The USDA’s estimate for Brazil corn production was left unchanged at 70.0mmt; their estimate for Argentina corn production dropped from 28.0mmt last month to 27.5mmt yesterday.  The USDA dropped their projections for US soybean carryout by 10mil/bu as a result of a 10mil/bu increase in crushings.  To the surprise of many traders, the export numbers were left unchanged for both corn and soybeans.  Many had thought that projections for corn exports would decrease while soybean exports would increase.  Brazilian bean production was left unchanged at 81.0mmt; Argentina bean production also left unchanged at 55.0mmt.

      As a result of yesterday’s USDA report, we have no choice but to express a negative bias towards the wheat market.  Most chart readers look as this downside breakout as being extremely bearish while fundamental traders can’t argue with the USDA.  Still, weather here in the US is a problem.  The vast majority of HRW wheat areas across the Plains have seen virtually no relief from this year’s drought.  Many believe that the hard wheat crop is in jeopardy; however most producers will tell you that they’re only a couple of rains away from being in excellent shape.  The wheat crop is resilient, especially this time of year and is a long way from being irreparable.

      Outside markets are mostly positive this morning.  Equities are marginally higher after a strong performance yesterday.  Despite a continuation of the stalemate between democrats and republicans in regards to the so-called "fiscal cliff," the market seems to be expressing some optimism.  Obama and House Republicans traded budget proposals yesterday; however no agreement has been reached at this time.  Obama said that he remains optimistic that a budget agreement will be reached and that is pretty confident that Republicans will give in to his demand for higher tax rates for top earners.  If congress does nothing, more than $600 billion in tax increases and spending cuts will take effect in January.

      Nearby corn contracts are holding up well despite yesterday’s collapse in the wheat market.  A move below $7.10 in the March contract may inspire further liquidation.  Meanwhile, opportunities to price Dec ’13 corn above $6.40 have slipped away once again.  Producers should focus the majority of their attention on the ’13 crop, as it involves far more risk from an operational standpoint.  November ’13 soybeans may have trouble holding a trade above $13.00 without a South American weather issue.  Now is time for producers to examine margins.

      We look for a soft trade this morning.  The soybean market will need to penetrate last week’s highs at $14.98 ¼ in the January contract to get traders’ attention.  Spread action has been positive for corn and negative for beans as of late.  We really have a mixed bag here as we move towards year’s end. 

 

www.standardgrain.com | info@standardgrain.com | (312) 462-4438       

Thursday AM Grain Update

Dec 06, 2012

 The January soybean contract traded its highest level since November 9th overnight. Some resistance should come into play near the $15.00 area, which marks a psychological number that coincides with the 50-day moving average.  The January bean chart is now "overbought" from a technical standpoint.  Corn and wheat played along yesterday but could not find follow-through buyers overnight.  The beans have been the only contract in the grain complex that has seen any real volatility during the past couple of months.  Despite excessive rains in Argentina, the country will see a 5-7 day drying period beginning on Friday.  Some are pinning the current rally in the beans on South American weather, which is not perfect but is "good enough" in our opinion.  Many traders are looking for this morning’s Export Sales report to indicate big sales to China for the current marketing year, which could require further demand rationing in the eyes of some analysts and traders.

      The USDA will release their Export Sales report this morning at 7:30am CST.  Pre-report estimates as follows:

·         Corn           300,000 – 500,000mt

·         Soybeans       450,000 – 750,000mt

·         Wheat          300,000 – 450,000mt

Brazilian government sources estimated 12/13 soybean production at 82.6mmt vs. last month’s estimate of 80.1 – 81.3mmt and 66.5mmt last year.  Corn production was estimated at 71.9mmt vs. last month’s range of 71.6 – 72.9mmt and 73.0mmt last year.  The soybean number in particular is quite a bit higher than estimates provided by private crop scouts and agronomists during the past few weeks.  Most sources in Brazil believe that the potential for a huge crop remains intact despite some weather issues.

EIA reported weekly ethanol production at 835,000bpd, up 31,000 from last week.  Stocks were reported at 19.3mil/bar, up 1.0mil on the week.

Outside markets are mostly mixed this morning.  Equity futures are marginally lower along with metals and the Euro currency.  US initial and continuing jobless claims data will be released this morning at 7:30am CST.  Analysts expect initial claims to fall by 18,000 to around 375,000.  More importantly, November unemployment data will be released tomorrow at 7:30am CST.  The consensus unemployment rate is 8.0% vs. 7.9% last month.  Non-farm payrolls are expected to rise by 80,000 vs. 171,000 last month and 148,000 in September.  The European Central Bank held their benchmark interest rate at .75% this morning.  The current rate is a record low but was widely expected by analysts.  ECB Preside Draghi will brief reporters this afternoon regarding the decision. 

The bean market has certainly gained some upside momentum during the past several sessions.  The old-crop rally has opened the doors to opportunities in new crop 2013 contract this week.  December ’13 corn and November ’13 soybeans are trading their highest levels in weeks.  Although we understand the fear of pricing grain under a potentially higher crop insurance level, we recall last spring’s scenario in which new crop contract leaked lower until a weather problem was imminent.  Corn acreage in the US will likely be record high in 2013.  One good production year will push prices to sharply lower levels in our opinion.  We have no opinion on the Dec ’13 corn market at this point; however risk and margins must be identified.     

Standard Grain | www.standardgrain.com | info@standardgrain.com |(312) 462-4438

 

 

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