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June 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 for more information.


Weather Still Main Issue despite USDA Report

Jun 28, 2012

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       The corn market is higher again this morning after finishing yesterday’s session 20+ cents off the highs in most contracts. The weather situation has not changed. Forecasters continue to call for extreme heat and very little rain throughout the country through the 10-day period. Data from the recently inaccurate GFS model is being ignored by more meteorologists in favor of the more accurate European weather model, which continues to stay dry next week. Some northern Corn Belt areas may receive scattered rains this weekend; however it doesn’t look as if a "crop saver" is in the cards. Even farmers in the more well-off areas such as S. Minnesota and much of Iowa believe that their crops will come under major stress during the next couple of weeks without a significant rain event.
      Soybean and wheat prices have struggled relative to corn this week. Current weather conditions will have far more impact on the corn crop than either soybeans or wheat. In general, the corn crop is "made" in July and the soybean crop is "made" in August.
      A Reuters poll of grain analysts pegged US corn yield at 157bpa, almost 10bpa above last year’s final number. Without timely rains during the next several weeks, a yield this high is unachievable in our opinion. The USDA’s most recent yield estimate is 166bpa, a number that is universally thought to be at least 6-7bpa too high. 
      More stories of ethanol plant closures or production halts are surfacing. Valero announced yesterday that a plan in Linden, IN will close due to poor margins. Nearly 40% of US corn production goes towards the production of ethanol. Traders are also looking towards the livestock sector for further demand cuts. Feeder cattle prices have been in a free-fall this week, however did show a chart reversal pattern to the upside yesterday. Export demand makes up a much smaller part of overall demand for US corn.
      The USDA will release its Quarterly Stocks and Acreage report tomorrow at 7:30am CST. The report is insignificant relative to current weather issues in our opinion. Traders are looking for both corn and soybean acreage to increase from the March Planting Intentions report. Old crop corn stocks have been heavily debated by traders who believe that they have been grossly overestimated by the USDA. The pre-report "cheat sheet" can be found on the following page.

      Interior basis levels have dropped off significantly during the past several trading sessions. In general, a sharp rally in futures will result in a basis break. The domestic demand situation regarding both ethanol and livestock also plays a role in the basis drop-off. / (312) 462-4438     

Grains Rally on Weather

Jun 25, 2012

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   The ag complex is trading sharply higher this morning due to concerns over extreme heat and little rain throughout the majority of the Corn Belt this week. December corn is now trading the highest levels since early February, taking out resistance at $5.70 on the open last night. November soybeans traded through the $14.00 mark after several attempts. 
Temperatures will top 100 degrees in many key corn and soybean areas on Thursday. Parts of Iowa and Illinois did receive slightly more rain than expected over the weekend; however the forecast moving forward is the more pressing issue. Parts of Kansas topped 100 degrees this past weekend; Hill City, KS achieved temperatures over 110 degrees the past 2 days. Our lead forecaster expects June to go down as the #1 driest since June 1988 and similarly dry to June 1936 across much of the Corn Belt. (Note: Corn prices topped near July 4th in 1988 despite the drought, the market is very quick to price-in production shortfalls) Storms associated with Debby are likely to stay away from the Corn Belt. A cool front could result in some rains this coming weekend; however significant amounts/coverage is unlikely at this point.
The USDA will release its Quarterly Stocks and Acreage report on Friday, which also happens to be first-notice day for July grain futures. Many traders expect both corn and soybean acreage to increase due to early planting during a mostly dry spring. Some analysts look for a bullish surprise in the corn stocks numbers. Basis levels have dropped off significantly during the past several days, a change that may have to do with falling demand from the ethanol sector. Ethanol margins are negative for most plants; Today’s rally in corn and break in crude will only make matters worse.
Outside markets are mostly mixed today. Crude continues its descent and is now trading below $79. Equities are marginally lower with metals mixed. The Euro is lower, which is generally a negative signal for commodities. 
Cattle-On-Feed was released on Friday. On-Feed 102% vs. 101% estimated; Placements 115% vs. 114% estimated; Marketings 101% vs. 105% estimated. The report was seen as being mildly bearish for cattle prices moving forward. 
We look for the markets to trade higher today. Weather markets are like a house of cards in many situations, in that one small shift in the forecast could cause the market to tumble very quickly. The next several weeks are the most important of the year for corn production. With the weather goes the markets…
Calendar: Export Inspections today at 10am CST; Crop Progress today at 3pm CST; Export Sales on Thursday at 7:30am CST; Quarterly Stocks/Acreage on Friday at 7:30am CST
Standard Grain provides futures and options brokerage to farms, feedlots, elevators, processors, large traders and end-users.  Call or email today! or (312) 462-4438

Grains Rally on Ratings, Weather

Jun 19, 2012

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The grain markets were sharply higher overnight on concerns over hot/dry weather through the 10 day period. The USDA released their Crop Progress report yesterday. Corn was rated 63% good-excellent vs. 66% last week and 69% on average. Ratings in IL dropped 4% to 52% G-E, IN ratings dropped 12% to 37% G-E, OH ratings dropped 11% while IA ratings were unchanged at 67% G-E. 
Soybean ratings also dropped sharply. The US crop is now rated 56% good-excellent vs. 60% last week. Major drops were seen in IL, IN and OH. Spring wheat conditions rose 1% in the good-excellent category, now rated 76% G-E. Winter wheat was rated 54% G-E vs. 53% last week. The winter wheat crop is now 48% harvested vs. 35% last week. The weather forecasts combined with what we’d describe as "overwhelmingly bullish" crop ratings have pushed the December corn contract within a few cents of $5.50 this morning; November soybeans are trading near $13.75.
"Weather Market 2012" is now in full swing. Forecasts for hot/dry weather through the 10-day period will bring much of the early planted corn into the first stages of pollination, which will be a major issue for producers. Our lead forecaster estimates that 35% of US corn production received less than half of its average rainfall during the last 30 days. Only 24% of US corn production received "normal" rainfall during this same period. Intense heat and strong winds will cause soil to dry faster than usual during the next 3-5 days, especially. 
Noted agronomist Dr. Cordonnier lowered his yield estimate for corn to 159.0bpa, down 2bpa from last week. Cordonnier also lowered his soybean yield estimate to 42.5bpa from 43.0bpa last week. Another noted academic, Dr. Darrell Good of the University of Illinois, anticipates that feed and residual use of corn during the 3rd quarter was larger than the estimate for last year’s use.   
Outside markets are mostly quiet this morning. Crude oil and equities are both up slightly. The Euro currency is also marginally higher. Despite concerns over the Eurozone and other macro factors, our ag markets will trade primarily on weather for the time being. 
As far as charts are concerned, December corn is flirting with major resistance at the $5.50 area. A close above $5.50 this week opens the door for a quick move to the $5.70 area.
Export Sales will be release Thursday morning; Quarterly Stocks and Acreage will be released on June 29th at 7:30am CST.          
Call us today at (312) 462-4438 or email to find out how we can help you!  

Friday AM Grain Market Update...

Jun 15, 2012

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      Soybeans are trading independently higher this morning while corn and wheat have struggled to remain unchanged to slightly higher. Yesterday’s export sales report was negative for corn and positive for wheat and soybeans. Weather forecasters are having trouble wrapping their heads around current forecasts, as the GFS model is conflicting with the EU model. Currently, the radar is showing a significant rain system across much of KS, OK, and parts of NE and IA. Forecasters are uncertain as to the direction this system will move and whether or not it will move into key corn growing areas in IA, IL and further east. 
      Outside markets are mostly positive for our ag markets this morning. Crude oil is trading higher, hovering in the $84-85 range this morning. The US$ is lower with equities and metals higher. The bond market has backed off since its “blow-off top” on June 1st. Most economists, as well as government officials, believe that interest rates will remain extremely low for the next 2 years at a minimum. 
      Informa will release their acreage estimates this morning, ahead of the USDA’s June 29th report. In their prior report, the private group estimated corn acreage at 96.1mil, soybean acreage at 75.8mil and total wheat acreage at 57.6mil. We believe that soybean acreage could rise significantly from March planting to June 29th due to a significant flat price rally. 
      USDA announced a 110,000mt SRW wheat purchase for the 12/13 crop year. This will be the biggest China purchase of our wheat since 2004. China is also said to have purchased several cargoes of old crop US corn this week. 
      Argentina soybean harvest is 96.8% complete according to exchange data. Recent rains there have slowed the harvest process. Corn harvest reported at 67% complete. 
      Looking forward to Sunday night, there are two major factors that could have an impact on the ag markets. Obviously, the first is weather; any major forecast change could result in major volatility. Feel free to email info@standardgrain on Sunday afternoon for the latest forecasts. Secondly, the much hyped Greek parliamentary election will take place over the weekend. To simplify, the “pro-bailout” party is currently holding a narrow lead in the polls over the “anti-bailout” party. Financial markets are on-edge, as the future of the EU could hang in the balance. A scenario in which Greece would leave the EU, abandon the Euro and return to the Drachma currency, would be very negative for the Euro currency and has the potential to have a major impact on our ag market over the short term. 

Quick USDA Report Summary

Jun 12, 2012


Corn:  Old crop and new crop carryout left unchanged.  World carryouts higher than expected.  Yield estimate left unchanged at 166bpa.  Neutral to slightly bearish.
Soybeans:  Old crop carryout at 175, below expected 198;  New crop carryout at 140, below expected 143; World numbers neutral to slightly negative.  Overall friendly for the market.
Wheat:  Friendly throughout.  Old crop carryout at 728 vs. 753 expected; New crop carryout at 694 vs. 714 expected; World numbers slightly supportive. 



Email or call (312) 462-4438 with questions! 

Ag Markets Mixed to Start Friday

Jun 08, 2012

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The ag markets traded lower overnight after trending upward for the majority of the week. Warm weather is slated to blanket much of the Corn Belt during through the 10 day period, which some cooling to occur only Monday and Tuesday of next week. The September and December corn contracts may be hugely undervalued at current levels IF heat issues persist into the beginning of July. Excessive heat was the main reason why corn yields were disappointing in ’10 and ’11. Weather markets are among the most difficult to trade, as forecasts can turn on a dime at any point throughout the trading day or night. The story with old crop corn remains the same: Tight cash supplies have resulted in phenomenally strong basis levels as elevators and processors struggle to source corn. Basis in Decatur, IL is still 50+ cents over the board. All of the pieces are there for a significant blow-up in the July corn contract shortly before or during the delivery period. 
      Macros are negative today, which may be the main reason for the break overnight. The Euro currency is sharply lower along with most other commodities. Crude oil is trading near the $82 area after trading over $87 yesterday. Gold and silver have also seen significant selling late yesterday and this morning. Fed Chairman Bernanke spoke yesterday, essentially squashing hopes for a QE3 type scenario over the short term, contradicting earlier ideas from Fed Vice Chairman Janet Yellen and other officials.
      Today’s macro-based selling may provide speculators an opportunity to take conservative long position in the old crop corn market. The best bet for a long position may be at-the-money July call options. We also like being long the Dec contract to a lesser extent. August options expire at the end of July and will take traders through the majority of major weather events that will affect the corn market. We believe the likelihood of the Sept-Dec corn spread moving to a carry is good, given historical movement. 
      Wheat yields across the Plains continue to come in mostly mixed. Above average warmth during the last several weeks may have taken its toll on much of the crop, especially in the West. 
      26% of US corn production received less than 1.00" of rain during the last 30 days while warm weather continues. Shorts in the grain markets may look to take cover if patterns persist. Everyone have a great weekend!       

Heat Wave Pushes Grains Higher

Jun 04, 2012

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Corn traded sharply higher overnight after a downside reversal trade on Friday. Forecasters are looking for significantly warmer weather than was advertised late last week while rain expectations are similar. Our lead forecaster looks for a sharp decrease in subsoil moisture levels throughout the Corn Belt during the 7-10 day period unless rains are bigger than expected. The soybean market has not paid attention to weather patterns nearly as much as the corn. Beans traded sharply lower early last night’s session, but have bounced this morning and are currently trading near the high end of the day’s range. Wheat futures are also trading higher this morning. The July Wheat vs. Corn spread topped out at just over $1.00; Corn has gained more than 40 cents on wheat during the last 5 sessions.
Friday’s unemployment data sent equity markets sharply lower. The US economy added only 69,000 new jobs in May while the unemployment rate rose to 8.2%. Macro news has been mostly bearish. Some corn traders have looked at the recent collapse in crude oil prices as a bearish factor for corn usage for ethanol. The recent rally in the US dollar is also bearish for commodities. The key CRB Index made new lows on Friday, now down 18% from its late February highs, as the commodity complex as a remains in a significant downtrend. Concerns over Eurozone debt crisis and Greece in particular remain an extremely relevant issue for our markets. Hedge funds and other money managers withdrew more than $2.3 billion from commodities during the final week of May.
Moving forward, weather will obviously be the key factor around which our day-to-day trade revolves. Feel free to call or email us anytime for updates on the most current weather forecasts. USDA will release Export Inspection this morning at 10am CST and Crop Progress this afternoon at 3pm CST. Remember that corn ratings dropped 5% in the good-excellent category last week. A further decrease this week would be seen as being friendly. The June Crop Production Report will be released next Tuesday, the 12th, at 7:30am CST. This will mark the first key USDA report that will be released during the new open trading hours. 
We believe that downside in the grain markets is limited from current levels given uncertainty regarding 2012 production. Picking a bottom is always very difficult, but we believe these markets are close. Soybeans likely have the most downside potential from current levels, given the high probability for an acreage increase from the USDA on June 29th. Many cash corn traders still believe that the old crop corn market still has a very significant bull story, given extremely strong basis levels and lack of supply. Look for wide ranges and a volatile trade today.  
Joe Vaclavik | (312) 462-4438 |     
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