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May 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.

 

Ag Markets Mixed This Morning

May 29, 2012

 

·         Grains mixed overnight with soybeans showing independent strength; Weekend weather was mostly as advertised on Friday, resulting in a relatively quiet corn trade; Rains were seen across some dry areas in the Corn Belt
·         Wheat feeling harvest pressure despite some reports of poor yield results in Kansas and elsewhere;  Weekend rains in Black Sea region as well as Australia adding to pressure; HRW wheat crop may have lost yield due to excessive warmth which caused early maturity
·         Dryness in some Corn Belt areas becoming a concern for producers, however the trade has yet to see any major reaction
·         Export Inspections and Crop Progress delayed until today due to Memorial Day holiday; Export Sales pushed back until Friday morning
·         Outside markets mostly supportive with US$ lower, crude higher, equities higher
·         Traders will continue to closely monitor weather forecasts this week; Intra-day market moves associated with forecast changes may be more plentiful now due to extended trading hours
·         China corn yields 35% below US yields according to gov’t official there; Ag official indicating that China may need to rely less on exports for future needs due to future improvements in crop production
·         CME Group intends to extend CBOT pit grain trading hours on USDA report days; New hours will open at 7:20am CST only on report days; CME still considering expanding pit to 2pm daily
 
Looking forward this week, traders will rely most on weather forecasts and crop progress numbers for the USDA for market direction. The corn crop was pegged at 77% good-excellent last week, a number that certainly maintains a bearish tone. The government continues to indicate through a number of different ways, that they believe corn yields will be big. The market will remain under pressure until a major drought/heat threat is seen. 
New crop soybean prices holding the $13 mark recently. We haven’t yet seen crop ratings for beans, and will need to wait a few more weeks until we know something about the crop as a whole. Producers should look to sell rallies in Nov beans near the 13.20 area.
 
 
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 / jvaclavik@straitsfinancial.com  

Rumors of China Cancellations

May 23, 2012

 

·         Grain market collapsing yesterday on rumors that China had cancelled or possibly deferred corn and soybean purchases from the US; Reuters story on Monday indicating that China had defaulted on or deferred coal on iron ore purchases; Several indicators point to weakening Chinese economy
·         Soybean making new lows for the recent move overnight; July contract now trading solidly below $14, Nov trading solidly below $13; Old vs. New spreads hold together despite flat price break
·         Wheat futures sharply lower again overnight; July wheat posting a textbook blow-off top on Sunday night, posting massive volume at the highs
·         Forecasters looking for increased rain chances next week, adding to pressure on corn market; Excessive heat still slated for this coming weekend
·         Greek situation remains uncertain, pressuring outside markets
·         USDA is seeking public opinion on whether or not it should change the release times of crop reports
·         Some confusion among country grain elevators regarding new extended grain hours; Some elevators confused as to which closing price, 1:15pm or 2pm, should be used for afternoon bids; Settlement prices are still based on price action at 1:15pm
·         Early estimates for 12/13 Brazil soy crop are much improved from this year’s crop; Reuters survey of panelists at Sao Paulo soy seminar showed average guess near 73.6mmt; Government expecting the 11/12 crop near 66.7mmt; Brazil is the world’s #2 soybean producers behind the United States
·         Some rains forecasted for Black Sea wheat areas, adding to pressure in wheat market yesterday/overnight; Hot/dry April was preceded by an unusually cold January/February; Many analyst looking for substantial declines in wheat crop there despite forecasted rains
 
Yesterday’s collapse occurred on a perfect storm of bearish news. Rumors of China cancellation along with increased chances of rain next week were too much for the markets to handle. Corn charts in particular still continue in loose downtrend. As we’ve said now for a few weeks, we believe the highs have been seen in the soybean market barring a significant weather threat. An almost guaranteed acreage increase here in the US combined with potentially large South American acreage this fall will be weights on the market.   
 
As always, call the office with questions or concerns.
Regards,
Joe Vaclavik

Grains Pressured Overnight, Crop Progress Bearish

May 22, 2012

 

·         Grains lower overnight led by wheat; Crop Progress yesterday afternoon seen as bearish; Most wheat contracts closing in the middle of a 40+ cent trading range yesterday, rejecting new highs; Noted spread unwinding seen in old vs. new crop contracts in both soybeans and corn
·         Crop Progress pegging corn 96% planted with a crop rating at 77% good-excellent; Soybeans 76% planted vs. 42% on average; Winter Wheat 3% harvested, rated 58% good-excellent; Spring Wheat 99% planted, rated 74% good-excellent
·         Forecasters looking for some rains in dry wheat areas of Russia, which may have added to pressure overnight; US slated for hot temps this weekend with scattered rains
·         Macro markets have been mostly negative; US$ mostly higher with crude down; Equities marginally higher today; US$ chart showing a bull flag pattern, trade above 82.00/June needed to confirm upside breakout
·         Wheat in Kansas, the largest wheat producing state, rated 43% good-excellent; 5th straight week of rating declines; The KS crop has dropped 26% in the good-excellent category since April 15th due to lack of rain and warm temps
·         Technicians looking for support in the 620 area in the July corn contract; Basis levels softening slightly yesterday
 
On an extended weather threat, we believe the December corn contract could test the 5.70 level. The majority of the recent rally has been short covering, as open interest has dropped. Any light interest in long positions from fund traders could easily push the market another 35 cents, in our opinion. Long term, we believe there is still significant potential for record corn yields this year. Most producers seem to be waiting for higher prices to extend coverage on new crop corn. The last couple of years have certainly conditioned some producers to wait on sales, which paid off in 2010 and 2011. 
We believe that November soybeans have seen the highs barring a significant weather issue. Acreage will likely increase 1+ million at a bare minimum, while many believe an increase of 2mil+ is likely. South American acreage will likely be enormous this fall due to high prices.
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 / jvaclavik@straitsfinancial.com  

Corn versus Soy Spreads Rally

May 18, 2012

 

·         Grains mixed overnight; Old crop corn trading nearly 6.30 in the July contract this morning after posting lows in the 570s on Monday morning; Most of the spec longs have flushed out of the market, leaving room for significant upside based on extremely tight old crop supplies
·         Soybeans showing strength in old crop while November contract relatively soft; Old vs. new spreads trading to new highs yesterday
·         Wheat futures strong; Dryness in western wheat areas combined with some concerns in Russia inducing short covering
·         Corn exports came in at low end of analyst estimates yesterday
·         National Corn Growers Association asking regulators for 30 day waiting period prior to CME grain trading hours expansion
·         Some dryness emerging in areas of Corn Belt; Warm temps slated this weekend
·         Outside markets mixed this morning; Crude near unch with metals and equities higher; Currencies mostly flat
 
Fundamentally, nothing has changed in the corn market. Weather patterns are still mostly favorable while cash supplies remain tight. Technically, we believe that a good portion of long spec money was forced out late last week and early this week. The fact that many of these longs no longer populate the market opens the door for the rally that could have happened several weeks if not months ago. 
Old crop soybeans seem to have found some footing, however we believe that more downside is certainly possible in the November contract. Soybean acreage could increase as much as 2.5mil from March to final according to some sources. We can’t argue with this idea given the movement that occurred in the soybean vs. corn spreads from late November through last week.  
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438

Beans Continue Correction

May 16, 2012

 

·         Grains lower overnight led by struggling soybean market; Yesterday’s rally may have simply been a short-lived bounce during a much larger price correction
·         Corn prices sharply higher yesterday despite mostly bearish weather and crop progress that is moving along swiftly; Old crop supplies still remain a major issue as basis levels remain extremely strong
·         Traders exhibiting new concern regarding Euro Zone and Greece in particular; Euro currency has been soft to start this week
·         Crude oil trading in the $91-93 range this morning; June contract traded over $110 in late February
·         Old vs. New crop corn spreads holding together overnight; July-Nov soybeans rallied yesterday but traded against a significant downtrend line yesterday; More downside expected according to some chartists
·         China demand rumors floating around yesterday as cause for rally; Traders will look for sales announcements at 8am
·         Federal Reserve Bank of Chicago says farm land prices in IL, IA and IN were 19% in the first quarter vs. last year
·         Ag economist from KS State looking for 2.0-2.5 million additional soybean acres in the US vs. March planting intentions; Some believe double-crop bean acreage will be significant
·         Farmland values rose 19% in the first quarter in IL/IN/IA according to Chicago Fed; Non-irrigated land in KC Fed district rose 25%
·         Opening calls lower for corn, beans; Lower for wheat
 
We look for continued downside in soybeans and continued upside in corn vs. soybean spreads. It’s tough to disagree with the K-State agronomist who looks for an additional 2.0+ million soybean acres given recent price spike. 
Warm weather continues as May is expected to be 7th consecutive month of warmer-than-average weather in IL, IA and IN. Conditions remain favorable for the time being; however unusual warmth in June or July could present a problem for corn growers in particular. Disappointing yields the last 2 years were mainly the result of hot temps.  
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438

Grains Bounce Overnight

May 15, 2012

 

·         Grain markets rally overnight; Technical bounce seen in beans while corn seems to have found some footing near current levels; Dec corn reluctant to move below $5 until we know more about the crop
·         Crop scout Cordonnier increased estimate for Brazil corn to 64.0mmt, up from previous 62.0mmt; All other SAM estimates left unchanged
·         Some traders discussing dryness in western wheat areas
·         Corn planting 87% complete (71% last week, 66% avg) according to USDA crop progress report yesterday; Soybean planting 46% complete (24% last week, 24% avg); Spring wheat 94% complete (84% last week, 64% avg); Winter wheat rated 60% good-excellent (63% last week, 47% avg)
·         Brazil grain analysts Celeres estimates soybean harvest at 99.5% complete; The group estimates that farmers have sold 83% of the crop vs. 80% last week and 63% on average
·         Rabobank issuing report indicating that China hog and pork prices will likely fall as much as 20% this summer vs. last summer
·         CME Group scheduled to begin 22 hour grain trade on May 21st; Several industry groups and traders have urged CFTC to delay the expansion of hours
·         ICE exchange began trading grain contracts on Sunday night; Volumes were very low in corn, soybeans and wheat
·         Export Sales on Thursday morning; USDA June Crop Production on 6/12; Acreage and Quarterly Stocks on 6/29
·         Outside markets mostly quiet today, equities marginally higher with crude, gold and currencies near unch
 
We believe that upside in old crop corn is possible given recent flush out of longs. The bulls have been defeated and their money has been taken. Tightness in the cash market and phenomenally strong basis levels continue. Spreads remain inverted despite trading well removed from recent highs. New crop corn’s best chance for a move higher, barring a weather event, may be a push from old crop contracts. The average farmer is undersold from what we can gather, and selling opportunities may be few and far between.
Look to sell rallies in soybeans. We believe that further spec liquidation is in order. Balance sheets will likely change drastically in coming reports due to price moves. 
 
As always, call the office with questions or concerns.
Regards,
Joe Vaclavik
(312) 462-4438 

Ag Markets to Start Friday Lower...

May 11, 2012

 

·         Grains traded sharply lower overnight; Beans led the way down despite a friendly report from the USDA report yesterday; Follow-through selling in corn after yesterday’s bearish report
·         Corn traders were left scratching their heads after seeing an upward revision in old crop corn stocks yesterday; Many had anticipated demand increases; USDA’s only revision a 50mil/bu drop in feed usage
·         New crop corn balance sheets seen as being very bearish; New crop corn yield pegged at 166.0bpa with the crop seen at 14.79bil/bu; New crop carryout projected at 1.881bil/bu
·         Soybean numbers were mostly friendly; New crop carryout at 145mil/bu is very tight, especially this early in the year; Traders noting huge inverse from Nov ’12 to July ’13 as an indicator of assumed new crop tightness
·         Old crop soybean carryout lowered to a snug 210mil/bu in increased in both crushings and exports
·         Brazil gov’t raising their soybean crop estimate to 66.7mmt vs. previous 65.6mmt; Also raised corn production number to 65.9mmt from 65.1mmt
·         Outside markets mostly negative today; JP Morgan reporting 2 billion dollars (some estimates as high as 4 billion) in trading losses, which has spooked the stock market early today
·         Crude oil prices continue to trading well below the $100 mark; CRB index taking major hit in recent weeks as gold, crude and ag commodities have dropped sharply
 
The fact that the USDA is estimating a record corn crop in ’12 should not be a surprise. The market has been touting big acreage for several months, while weather conditions have been obvious. As of now, a very significant amount of bearish data has been priced into the market. A short-lived weather scare would be the best chance that farmers will see to price grain ahead of June 29th, when the USDA will release final acreage numbers as well as quarterly stocks estimates. The March stocks numbers sent corn limit-up in old crop contracts, and many expect that a similar reaction is possible on bullish numbers. 
The trade will focus mainly on weather from here on out. The better the weather, the lower the corn goes. 
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438

Beans Liquidate Ahead of Tomorrow's Report

May 09, 2012

 

·         Grains led lower by soybeans overnight; Spec money clearly flowing out of the soy complex, set off by last week’s key reversal in the July bean contract; Despite continued China interest in US beans, the market has been long overdue for a significant correction
·         Corn vs. soybean spreads rebounding sharply during the last several sessions; Many believe that new crop soybean acreage could be sharply higher than the March prospective plantings number
·         Weather patterns continue to be favorable for producers across the Corn Belt; Some small pockets will need to replant corn due to excess rains, but conditions on the whole are very good
·         Macro data has been mostly bearish for grains; Equities trading well off recent highs while US$ rallies on EU concerns; Crude oil trading solidly below $100 with gold below 1600; Key CRB index falling sharply
·         Due to lagging cattle prices and lower crude, some now questioning domestic demand for corn via both ethanol and feed buyers
·         USDA to release May Crop Production report tomorrow morning, will include first look at new crop balance sheets; Traders looking for new crop corn carryout near 1.7bil/bu, most look for a yield estimate at 165bpa or higher; New crop soybean carryout estimated at a tight 164mil/bu
·         Opening calls are lower across the board; Some look for more liquidation in the soy complex ahead of tomorrow’s report; December corn now trading about 11 cents removed from recent lows
 
We look for a continued correction in corn vs. soybean spreads. Based on several different sources, we believe that soybeans will gain significant acreage from the March Prospective Plantings to the June Acreage reports. 
The old crop corn situation is clearly tight, given the recent action in the May contract. The USDA has been reluctant to lower corn carryout to this point, however a bullish surprise could be in order on future reports. A projected new crop corn carryout near 1.7bil/bu is an enormous weight on price action despite old crop tightness. Without a significant weather threat this summer, we believe that any rally will be difficult to sustain.   
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438

Corn Planting 71% Complete

May 08, 2012

 

·         Grains mostly higher overnight led by old crop corn contracts; May corn trading 6.70+ overnight as basis levels explode on supply tightness; Dec corn able to close near unch yesterday after trading sharply lower early in the day
·         Soybean prices have been under pressure since last week’s key reversal on the charts; Many traders believe that significant acreage will be switched into soybean given spread action versus corn during the last several weeks
·         Agronomist Cordonnier left Brazil soybean estimate unch at 65.0mmt; Also left Argentine corn and soybean estimates unch
·         Rumors of China interest in both old and new crop corn from the US continue among traders
·         Crop Progress released yesterday after the close; most of the planting progress numbers were above analyst estimates:
o   Corn                                     71% planted / 53% last week / 47% avg / 32% emerged
o   Soybeans                            24% planted / 12% last week / 11% avg / 7% emerged
o   Spring Wheat                     84% planted / 74% last week / 49% avg / 47% emerged
o   Winter Wheat                   63% good-excellent / 64% last week
·         USDA to release May Crop Production report on Thursday morning at 7:30am CST; Traders looking for new crop corn stocks near 1.714bil/bu, which would be an increase of about 130% from this year
·         No major changes in weather forecasts, which have been mostly favorable for corn and soybean producers up to this point
 
Producers should look to add to PUT option positions in December corn on a rally to the 5.35-5.40 areas unless a weather issue is encountered. Producers shouldn’t aim to look a gift horse in the mouth; and a rally in new crop corn without a weather issue and a projected 1.7bil/bu carryout is a gift. We’re not advising to price the entire crop on a marginal rally, but we believe adding to protection is a must.
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 

Corn Basis Explodes, New Crop Futures Lag

May 07, 2012

 

·         Grains lower overnight after a wild trading day on Friday; May corn, now in delivery, traded sharply higher on cash market tightness; May now trading 47 cents over July and 1.46 over December
·         Rains over the weekend aiding producers who have finished corn planting, while others wait for a few days of dry weather to wrap up seeding; Conditions remain close to ideal for the majority corn growers
·         Outside markets trading wide ranges overnight; Left wing candidate Hollande defeated incumbent Sarkozy in French election; Hollande is first socialist French president in almost 20 years; Hollande is anti-austerity, which causes uncertainty in financial markets around the world
·         Informa estimating US corn acreage at 96.12mil and soybeans acreage at 75.8mil on Friday; Both numbers up from USDA’s prospective plantings that was released on March 30th; Many believe that early spring and favorable planting conditions will lead to higher overall acreage
·         USDA to release May Crop Production report on Thursday morning at 7:30am CST; Analysts looking for corn carryout near 720mil/bu; Carryout for 12/13 corn expected near 1.7bil/bu; Soybean carryout expected near 220mil/bu, 12/13 carryout expected near 170mil/bu
·         Poll of grain analysts forecast China’s corn imports will jump 60% in the year ending September ’13; Imports expected at 7.9mmt vs. 5.0mmt this year; Talk continues to circulate that China is looking to buy US corn on breaks
 
Favorable weather conditions and bearish macros may keep the grain markets under pressure today. Still, we do not underestimate the upside for the May corn contract during the delivery period. Old crop corn supplies are tight, however extremely strong basis levels and hugely inverted spreads should help ration demand to a great extent. December corn posted a new low close on Friday despite the upside in the May contract. With some analysts looking for a 12/13 corn carryout at 1.7bil/bu or higher, upside will be limited without a significant weather threat this summer.
Soybean prices have been leaking lower since a key reversal was posted in the July contract last week. While supply issues remain, we feel as if a great portion of the production woes in South America have been priced in.   We strongly advise that producers have at least 30% of their new crop soybean production priced.      
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 

Farmers and Social Networking

May 03, 2012

Check out a video I for Nightly Business Report on Farmers and how they are using twitter and facebook. 

CME to Extend Grain Trading Hours

May 02, 2012

 

·         Grains mostly lower overnight; Trading has been choppy during the first half of this week after Friday’s rally
·         CME announcing yesterday that grain trading hours would be extended; The new 22 hour per-day schedule involves a short close from 4pm to 6pm CST every night; Trading will now open at 5pm CST on Sunday nights; One of the major features of this action is that markets will now trade during pivotal USDA reports; Changes take effect on May 14th, coinciding with the launch of the new ICE Exchange grain contracts
·         Forecasters look for unusual warmth to continue through the end of the week for most Corn Belt areas; Heat may stress HRW wheat crop in some areas; Occasional storms hit northern/central corn areas through Monday; Cooler temps to return next week
·         Outside markets mostly negative for grain trade this morning with US$ sharply higher, equities/crude/metals lower
·         Export Sales tomorrow morning at 7:30am CST; USDA Crop Production on May 10th
 
 
Traders continue to wait on fresh demand news while weather conditions remain favorable. Many bulls continue to look for an extension higher in old crop corn contracts after Friday’s massive export sale. We have yet to see any major weather concern. We believe that a combination of early planting and favorable weather could result in an overall acreage increase. While we believe that a significant amount of acreage has been moved from corn into soybeans, we also believe that a 2007 type scenario, in which both corn and soybean acreage increased from prospective to final, is possible.
It’s tough to say how much of the South American weather issues are priced into the soybean market. The story has become stale in our opinion. Soybeans have very rarely been able to hold a trade above $15 for any significant amount of time. This is a fantastic opportunity for any producers holding old crop beans. As far as new crop is concerned, we feel that any sale over $13/cash is a good place to start.     
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438

Bearish Crop Progress, Grains Lower Overnight

May 01, 2012

 

·         Grain markets down overnight after a strong close yesterday; July soybeans closing over $15 yesterday, Nov beans now within 20 cents of recent highs
·         Crop Progress seen as bearish yesterday; Corn planting at 53% vs. 28% last week and 27% on average, Iowa planting at 50% vs. 9% last week; Beans 12% planted vs. 6% last week and 5% on average; Spring wheat 74% planted vs. 57% last week and 32% on average; Winter wheat rated 64% good-excellent vs. 63% last week
·         Unseasonable warmth to engulf much of the central US this week; Some rains will accompany the warm weather later this week
·         CME announcing yesterday that grain trading hours will be extended; There has been confirmation of the new schedule; Many believe the grain will trade 22 hours per day, closing only from 4pm to 6pm; This action coincides with the The ICE’s launce of grain products this month; Action could mean that markets would actually be open during the release of USDA reports
·         Export Sales released on Thursday morning at 7:30am CST; May Crop production on the 10th at 7:30am CSt
·         Outside markets mostly supportive for grains this morning, US$ lower, equities higher, crude flat
 
Yesterday’s bearish crop progress number is not a surprise to most farmers around the Corn Belt. Favorable weather patterns have allowed planting to move along without a problem, overall. We continue to believe that the market will need to perceive some sort of weather threat in order to see a significant rally in new crop corn prices. Put options are still very cheap relative to past years, as are call options. The protection is available for those who need it.
We believe that a minimum of 1m corn acres will be switch into soybeans. We also recall the 2007 experience in which both corn and soybean acreage increased from prospective to final. We believe this type of increase is very possible this year due to favorable weather and an early spring.     
 
As always, call the office with questions or concerns.
 
Regards,
Joe Vaclavik
(312) 462-4438 
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