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July 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.


Grain Markets Stabilize Overnight...

Jul 25, 2012

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      The grain markets have stabilized and are trading higher this morning after two days of intense selling pressure. Forecasted rains across much of the Corn Belt this week were the catalyst that set off a barrage of fund liquidation on Monday and Tuesday. Overnight rainfall was slightly less than expected. Forecasters look for intense heat and dryness to return in the coming days.  Most soybean contracts are more than $1 removed from Sunday night’s highs while corn is within 15 cents of the all-time highs. Corn has been able to hold together better than beans for a couple of different reasons. Firstly, most agree that the corn crop in many areas, especially in the east, will not be helped by rains this late in their maturity. Secondly, the average fund trader has a much smaller position in corn relative to their record long position in soybeans and substantial long in wheat. This means that the big traders have more to liquidate in beans/wheat when bearish news hits.
      Smithfield, the world’s largest pork producers, will import corn from Brazil, according to this morning’s Wall Street Journal. It is very unusual to see US feeders buy feed grain from overseas; however this year’s drought and high grain prices have forced their hand. It has also been rumored that Tyson, the world’s largest chicken producer, would import corn from South America. This cannot be confirmed as traders await earnings numbers from Tyson. Corn at Brazilian ports can be bought for near $290 per metric ton compared with $345 at the US Gulf. The cost of shipping to the US is near $30-40 per ton, making the Brazil corn far more economical. In the vast majority of situations, prices of corn at Brazilian ports will be on-par with, if not cheaper than, corn at the Gulf. 
      Export Sales will be released tomorrow morning. August options for corn, soybeans, wheat, meal, oil, oats and rice expire on Friday. The USDA will release their August Crop Production report on Friday the 10th. A Reuters poll of grain analysts pegged the US corn yield at 130.8bpa vs. their estimate last week of 130.8bpa. The same group pegged the soybean yield at 38.5bpa vs. 39.0bpa last week. The Cropcast crop tour pegged 5 fields in Illinois at 101bpa; the same fields yielded 151bpa last year. The International Grains Council will update their global harvest forecast tomorrow. Early in July, the group increased their global grain harvest number to 917mmt, up from 913mmt previously.
      Outside markets are mostly positive this morning with crude, equities and metals higher. US Dept of Commerce will release new home sales for June at 9:00am CST; EIA energy stocks will be released at 9:30am CST. Look for volatility in the grain markets to continue. We believe that corn has the potential to make new highs by the end of the week.   
Standard Grain, Inc.
One Financial Place Suite 3990
Chicago, IL 60605

New Highs Overnight

Jul 16, 2012

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      Corn, soybeans and wheat made new highs overnight as traders realize that permanent crop damage has been done throughout the majority of the United States. We now know that the corn crop will be poor, and that the soybean crop will likely suffer a similar fate. Some analysts are now looking for a national corn yield below 140bpa. Some believe the market is in the process of pricing-in a national corn yield near 135bpa or lower. The biggest question now: How much are ethanol plants, feeders and importers willing to pay for the grain? Ethanol margins are clearly negative despite its current premium to gasoline; margins for many livestock operations will be negative in coming months. The USDA only lowered their projection for ethanol demand by 100mil/bu on last week’s report, leaving plenty of room for further reductions. Some traders are talking about the possibility of government intervention regarding the current ethanol mandate. There has been no concrete evidence that any such move will be made up to this point.
      Weekend weather patterns were within expectations. Scattered rains were seen across many areas, however coverage was poor. An intense heat wave will engulf much of the country during the next 10 days; while below average rainfall is expected. The bottom line here is that no relief is seen through the end of the month. The most critical phase for the corn crop has passed in the east and is in progress in many areas in the west. 
      The USDA will release their Crop Progress report this afternoon. Again, major declines are expected in both corn and soybean ratings. A drop of anywhere from 3-10% is expected for both crops according to trade sources.
      Although they have virtually no impact on the "Drought ‘12" grain market, outside markets are mostly negative this morning. Crude oil, equities and metals are marginally lower with the US$ higher. The European Central Bank is now advocating imposing losses on holders of bonds issues by troubled banks in Spain, in a major reversal. 
      Moving forward in time, there are many question marks surrounding not only our markets, but also government policy. Crop insurance claims will undoubtedly set a new record this year while the ethanol industry takes a bath. Livestock numbers will almost certainly fall during the first part of 2013, if not earlier, due to high feed prices. The shock wave of $8 corn and $16 soybeans will be felt for many months to come; even if the prices do not sustain themselves. Below trend corn yields have occurred 3 years in a row only twice in the last 40 years. Both times, a fourth year of below trend yields was seen. 
      We wouldn’t be surprised to see corn or soybeans trade limit-up today ahead of Crop Progress this afternoon. We believe that December corn will trade $8 by week’s end.
Standard Grain, Inc.
One Financial Place Suite 3990
Chicago, IL 60605

Corn Rebounds After Yesterday's Reversal...

Jul 12, 2012

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        Yesterday’s report was friendly for corn at first glance, however the demand numbers told a much different story than the 20bpa cut in corn yield. The corn market was able take back a nice portion of yesterday’s losses overnight. Soybeans remain under pressure while wheat trades marginally higher. December corn and November soybeans posted downside “key reversals” on the charts yesterday; we’ll need to see some follow-through by early next week at the latest to confirm that a top has been seen. There is still been no relief from recent weather patterns, as even corn in “good” areas suffers due to heat and lack of moisture. 
          The USDA lowered the national corn yield by 20bpa to 146bpa yesterday. The biggest surprise yesterday, however, may have been the cuts in new crop corn demand projections. The gov’t cut over 1 billion bushels from new crop corn demand, with 650mil/bu coming from feed demand.  Export demand projections were down 300mil/bu while demand for ethanol was down only 100mil/bu. Many analysts believe that demand for ethanol could slip much lower if prices were to remain high. As a result of the USDA’s adjustments, their estimate for new crop carryout shrank by 698mil/bu, a number which could have been much more severe if demand cuts were not seen. The new crop corn carryout number was about 100mil/bu below trade expectations. Some traders failed to notice that old crop carryout grew by 52mil/bu due mainly to a cut in exports. 
               Lesser adjustments were made to the soybean and wheat balance sheets. The national bean yield was lowered to 40.5bpa from 43.9bpa in June. New crop soybean demand was cut by 150mil/bu, with cuts made in crushing and exports. National wheat yield was raised by 0.2bpa to 45.6bpa. Old crop stocks increased slightly while new crop exports were increased by 50mil/bu. In general, the report could be considered slightly friendly for the wheat market.
Export Sales to be released this morning at 7:30am CST, pre-report estimates:
·         Wheat                300,000 – 500,000mt
·         Corn                 200,000 – 500,000mt
·         Soybeans             350,000 – 650,000mt
      Weekly ethanol production numbers continue to suffer. This week’s output was the lowest since July 2010. We believe that the end of the bull market in corn will ultimately coincide with massive demand loss from the ethanol sector if prices stay relatively high. We look for wide ranges again today. Outside markets are mostly negative for our ag complex today. Crude oil is over $1 lower with the US$ higher and equities lower. Please call with questions.     


Standard Grain, Inc. / / (312) 462-4438

Sunday Afternoon Pre-Open Grain Update

Jul 08, 2012

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Crop Ratings Collapse, Markets Up

Jul 03, 2012

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      The grain markets are sharply higher this morning due to persistent hot/dry weather across the United States. Last night’s sharply higher open was based mainly on yesterday’s Crop Progress report from the USDA. In addition to a collapse in crop ratings, many private groups are lowering their yield estimates. Agronomists and crop scouts now look for national corn yields near 150bpa vs. the USDA’s current estimate of 166bpa. The USDA is virtually guaranteeing us that their yield numbers for both corn and soybeans will drop sharply on their July 11th report based on these Crop Progress reports.   
         US corn ratings dropped another 8% in the good-excellent category; the crop is now rated only 48% G-E, the lowest since 1988. Ratings in IL dropped 11%, OH dropped 18%, KY down 19% and IN down 8%. Even ratings for states west of the Mississippi are now deteriorating rapidly. IA was down 6%, MO down 16% and ND down 10%. Corn silking at 25% vs. 10% last week. 
Soybean ratings also fell 8% and are now rated 45% G-E. Spring wheat ratings fell 6%, however the overall crop is still rated 71% good-excellent. Winter wheat is now 69% harvested vs. 59% last week.
        Because of the continued drop in crop ratings, analysts continue to drop their estimates for corn and soybean yields. Noted agronomist Cordonnier lowered his estimate for US corn yield to 150bpa vs. his previous estimate (last week) of 156bpa. Dr. Cordonnier lowered his soybean yield estimate to 41.0bpa from 42.0bpa last week. Weather group Cropcast lowered their corn yield to 150.6bpa from their previous estimate of 153.3bpa. The group’s soybean yield estimate was also lowered to 40.0bpa from 40.6bpa previously.
           At this point in the year, it will be very difficult for crop ratings to rebound to “normal” levels, even if a significant rain event were to occur. The market’s job right now is to price-in the assumed production shortfall in corn and soybeans as quickly and efficiently as possible. Soybean traders should keep in mind that another South American crop will be planted this fall. Traders fully expect soy acreage there to be massive due to high prices and currency action. We feel as if the upside in soybeans may be somewhat limited, relative to corn, as a result. 
       The grain markets close at 12:00pm CST today and are closed all day tomorrow in observance of Independence Day. The markets will not re-open until 9:30am CST on Thursday morning. Everyone have a wonderful 4th of July! / (312) 462-4438
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