EHedger Afternoon Grain Commentary 8-11-2011
Aug 11, 2011
The August USDA Supply and Demand report was out this morning and caused a sharp market rally in the grains. December corn traded up the limit on the open but finished 25 ½ cents higher at $7.14. December wheat finished 13 ¾ cents higher at $7.33, and November soybeans up 30 ¼ at $13.31 ¾.
The report was bullish for corn and soybeans with large yield reductions between both crops. The wheat numbers were left in-line with estimates. I would say the biggest surprise was the large reduction in soybean yield and production. Also, we think that there is more wheat that will be fed than what the report is indicating.
Now that the August S & D report is out, and the market is expecting lower production, where do we go from here? It is a good chance we will see new crop corn try to take out the highs again in the short term. Bull markets need to be fed and this was enough of a bullish report to get a limit move in corn. We still have to get the rest of the way through August and there is a chance that the market will continue to call for more yield reductions. At the same time, we could also see demand levels cut even from what we are estimating. Even though they reduced their Ethanol number slightly, we still think they are overstating corn used for ethanol by up to 100 million bushels for 10-11 and potentially even more for the 11-12 demand estimates. Right now the market is completely focused on supply concerns and the support has remained strong.
With the uncertainty in the outside markets we still have plenty of downside risk in the market. With 300-500 point swings in the Dow every other day, we could see a large flight to quality and risk-off. Just like 2008, this is a risk that should be considered when marketing. If you would like to go over your position again in AMMO, please give your broker a call.
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