Low In Place For Grains Or Dead-Cat Bounce?

April 2, 2013 01:02 AM

What Traders are Talking About:

* Low in place or dead cat bounce? After two days of sharp price declines, led by old-crop corn futures, grain and soy futures are higher this morning. As a result, traders are asking: Is a low is in place or is this little more than a dead-cat bounce? As I've often said, demand will be the key indicator. Global end-users, especially Asian countries, are using the sharp price break the past two days as a buying opportunity. South Korean buyers floated multiple tenders and made some purchases of corn, soybean meal and wheat overnight. Taiwan and Jordan also tendered for wheat.

The long and short of it: The pickup in export demand signals the sharp price break is encouraging value buying, but the key is whether there's enough demand to sustain a price recovery.

* Massive fund selling hits grains. Funds have been very active sellers the past two days, especially in the corn market where they dumped an estimated 75,000 contracts (375 million bu.). That's more than one-quarter of their net long position in corn heading into USDA's March 28 reports. Funds have also sold 21,000 contracts (105 million bu.) of both soybeans and wheat the past two days.

The long and short of it: While end-user demand will signal when the market has found "value," speculative money flow will also be a key in determining when a low is in place.

* Winter wheat crop worsens over winter. USDA's initial winter wheat crop condition ratings of the spring show 34% of the crop is "good" to "excellent" while 30% is "poor" to "very poor." That's a one-percentage point increase in the top two categories from the final ratings last fall, but a four-percentage point increase in the bottom two categories. When USDA's crop condition ratings are plugged into the weighted (by production) Pro Farmer Crop Condition Index (0 to 500 point scale), the HRW CCI rating dropped 15 points from the final reading last fall to 277, while the SRW crop fell 12 points to 362. For HRW, CCI ratings in Kansas, Texas and Colorado declined, while the Oklahoma CCI rating improved. Nebraska's CCI rating was virtually unchanged from last fall. For SRW, declines in Michigan and Ohio were the primary reasons for the ratings drop.

The long and short of it: Recent heavy precip through the central U.S. is beneficial for the winter wheat crop, but as USDA's crop condition ratings and the Pro Farmer CCI ratings show, the HRW crop has major hurdles in front of it this spring.


Follow me on Twitter: @BGrete

Need a speaker for a seminar or special event? Contact me: bgrete@profarmer.com

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