Walsh Commercial Hedging 11/9/12
Nov 09, 2012
The trade was anxiously awaiting today’s NASS report and again it offered up a few surprises. Of course, the biggest surprise of all was raising its projection for soybean yield to 39.3 bpa, up a whopping +1.5 bpa from the October report. This helped push soybean production to 2.971 billion bushels, up 4% from its estimate last month saying that “late-season rainfall helped the crop bounce back somewhat from the drought.” Somewhat?! This is the largest increase for bean yields from an October to November report. The 39.3 bpa wasn’t even in the range of estimates and significantly higher than the 38.2 bpa the trade was expecting so I’d say the late season rains helped out a lot! Anyways, I found it hard to believe considering the USDA said they harvested 60% of their test plots before the October report but we have to live with this number and move on. The USDA managed to increase domestic crush demand by 20 million bushels and exports by 80 million bushels to offset the increase in overall supply. This left ending stocks at 140 million bushels vs. the 133 the trade was expecting. World ending stocks for the 2012/13 season came in at 60.02 million tonnes as compared to 57.56 in last month’s estimates. The US soybean carryover versus use is still exceedingly tight, while the World Supply/Demand balance sheet is tight but less so than in the US. This caused the spot January soybean contract to sharply drop and finish the day down 44 ½ cents at 1451 ½. In my opinion, this number will not likely get much larger in the January final report so the market should turn its attention to demand and South American crop prospects. I wouldn’t be surprised if we hear China inquiring about some cargoes of beans after this sell-off. For soybeans buying “puts” will keep you in the game for open cash sales and buying “calls” could be a strategy to re-own previously sold bushels. Call the office for a more detailed plan of an attack. The wheat and corn complex had an up and down day. For wheat, I found it a bit surprising that the USDA didn’t cut the world wheat carryover but actually increased it a tad. They pegged world ending wheat stocks at 174.2 MMT which wasn’t even in line with expectations of 169.0-174.0. Australian wheat production was reduced about 2 MMT- in line with recent expectations. However, they didn’t change Argentine wheat production even though there has been chatter about too much rain in Argentina leading to quality issues. December Chicago wheat did make a high of $9.16 ½, not seen since September 17th, on a higher corn trade during the day but both eventually succumbed to the sharply lower soy trade with December Chicago wheat finishing down 16 cents at 886 ½. The NASS numbers in my opinion for corn were largely a non-event, albeit production and yields came in slightly above expectations. The USDA tweaked corn yields +0.3 bpa from the October report to 122.3 bpa which added an extra 19 million bushels to production which is now pegged at 10.725 billion bushels. The 122.3 bpa would still mark the lowest yield in the US in 17 years, showing how the drought took a heavy toll on the nation’s largest crop. US ending stocks are pegged at just 647 million bushels which is up from 619 last month. I said the corn numbers were largely a non-event because the USDA doesn’t revise harvested corn acreage from the October to November report, preferring instead to make any necessary revisions in the January annual report. This has been going on for 16 years now. However, this year was definitely unlike previous years because of the historic drought. In my opinion, this could be an early Christmas gift to end users because a tiny reduction in harvested acreage would greatly affect ending stocks thus most likely bringing a sharply higher trade. Also, we have to question how much of the corn crop was damaged from Hurricane Sandy in Ohio and Pennsylvania. With such a tight balance sheet every bushel not harvested can greatly reduce the overall ending stocks but we won’t know until the January final report and because of this it’s my opinion corn will continue its range bound trade unless export demand gets really strong or the weather in South America takes a turn for the worse. One final thought, I have the Bears winning by 3 against the Texans on an extremely windy night on a soggy Soldier Field turf. Have a good weekend!
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