EHedger Afternoon Grain Commentary 3-12-2012
Mar 12, 2012
Grains finished mixed with corn and wheat closing strong and beans finishing lower. March corn, which is in the delivery period, closed 17 ¼ cents higher at $6.71 ½. May corn finished 14 ½ cents higher at $6.59 ½ and is now at a 5 ½ cent premium to July corn. May beans finished 3 ¼ cents lower at $13.34 ½. May wheat finished 8 ¼ cents higher at $6.51 ¼.
Corn supply concerns continue to keep money flowing into the front month contracts. May corn made the day session highs within the first half hour of trading. There were reports of high volume call buying in May corn calls. On Friday we talked about the rumors of China buying a significant amount of US corn. We have not received confirmation of these by the USDA and if we don’t by tomorrow they may be suspect. We had this same thing happen last year with multiple rumors flying of China buying corn which never came to reality. I think much of this strength may be due to the fact that producers are holding on to their grain. With as much on-farm storage as there is, commercials have had to provide extra incentive to get the bushels. Basis levels are still strong, and they are paying the market to sell now rather than wait until July.
For new crop corn, the market seems to be expecting a large increase in acres. Last year we had 10.5 million acres in "prevent plant". We also have another 1.5 million acres coming out of CRP. With the price incentives to plant corn and soybeans, we believe those markets will benefit the most from extra acres. Once we get past the March 30th Planting Intentions Report, the market will have a much clearer picture on what to expect. If we do get the additional acres planted and corn has 94-95 million acres and soybeans 75 million or more, this will give us plenty of leeway to try to build stocks from current "tight" carryout levels. Conversely, if we get to the end of the month and quarterly stocks are not as low as many are predicting, we may see a significant market correction again, just as we did on the last stocks report in January.
The latest USDA report shows that they are expecting large cuts to soybean production in South America but they did not reduce their corn production estimates in those areas this time around. We know that the "managed money" has already changed to a sizeable net long position in soybeans over the past two months. Now that Brazil is estimated to be 46% harvested, the market should start getting a solid idea of what the production actually is. In the next couple of weeks leading into the report, the market may continue to give opportunities to get caught up on sales. Weather has been very mild so far and if planters start rolling early this year it may keep prices resisted. We still like the current hedge recommendations, if you have any questions please contact your EHedger broker. Have a great week!!!
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