Published on: 17:55PM Mar 28, 2012
Many analyst are discounting the recent setbacks in both corn and wheat, but I urge you to pay close attention as volume has been brisk and both markets have now "technically" closed below their 50-day moving average. My point is, if we continue to break technical levels to the downside, the trend-following funds may start to shift more heavily to the "short-side" of the boat as the "technical" picture become more clear.
There are certainly some arguments that can be made by the bulls in regards to abnormally dry conditions in many parts of Europe and Ukraine, but for the most part "weather" is being construed in the market as somewhat neutral to bearish from my perspective. Here at home improved weather conditions prompted wheat conditions to move higher: In the weekly progress reports, Kansas winter wheat crops were rated 59% good to excellent which is up from 54% last week and just 31% last year. Oklahoma crops were rated at 75% good-to-excellent, up 5% from last week. While topsoil is short-to-very short on just 13% of the area vs. 84% last year. Nebraska crops are rated 71% good to excellent as compared with 40% last year.
Extreme "volatility" will be the norm over the next 5-7 trading days. Not only do we have the USDA "Quarterly Stocks Report" on Friday morning, which has produced a limit-move in six out of the last seven releases, but we also have the funds beginning their "roll" out of the front month as well. Talk in the trade is that "Rogers" will begin their roll this week with Deutsche Bank and Goldman ramping up next week.
Soybeans, in my opinion, will continue to be considered the darling of the trade, and any number released in Friday's USDA report will more than likely be spun by the funds as "bullish" to some degree. Keep in mind, we are already hearing talk that US soybean acres generally tend to fall short of the March USDA planting intentions. This gives the bulls a solid argument regardless of Friday's numbers. If the USDA comes out and says they estimate 76 million soybean acres, the bulls will be quick to point the actually number of acres planted is almost always lower than the USDA March estimate. There is also a strong tendency for the soybean stocks to be "overestimated" in the March report.
On the flip side, corn acres generally tend to end up being a little higher than the March planted acreage estimates, so the bears may end up holding the upper-hand in corn. There is also talk that because of the "early planting" of corn that is taking place across the US we may see the USDA continue to bump the early corn yield estimates higher, some talking the May WASDE could pencil in US corn yields up in the 166 to 167 area. Obviously this could be a little extreme, but with early planting and fairly good weather conditions, the USDA tends to quickly push yields higher. I still contend with a standard deviation for error somewhere between 8 and 11 bushels producers and traders alike can not be too quick to buy into these estimates. All I am saying is do NOT be surprised or get caught off guard by the USDA throwing extremely high yield estimates into the mix early on. I also have to believe early corn plantings will ultimately take away from soybean acres and create an even more bullish situation for soy.
I am not looking for any real big surprises out of the wheat numbers. If you talk to producers up north I guess you would need to question the 13.3 million average trade guess for Spring Wheat acres. Most seem to feel it is too high, and that we will be lucky to plant much over 12.3 million Spring Wheat acres, with more and more producers opting to plant more corn, soybeans, barley or canola this year.
South American soy production continues to be the talk of the trade. Many source now thinking the USDA is 4-6 million metric tons too high in regards to their South American estimates. Brazilian production seem to feel like 64.5-66.5 million metric tons depending on who you talk to, while Argentine production seems to feel like 44.5-46.5 million metric tons.
I listed below a few of the bigger surprises that I have heard floating around in regards to the USDA numbers:
- Linn Group estimating 76.7 million soybean acres, the highest in the trade. While Macquarie is on the low end at just 74 million. both of these are very well respected firms and seem to be miles apart in their estimates.
- Doane throwing out the highest corn acreage estimate at 95.6 million acres. While firms like AgResource, CitiGroup and Newedge are all throwing out corn acreage estimates between 93.6 and 93.75, which is considered to be extremely low.
- ADM throwing out the highest All Wheat acreage estimates at 58.2 million, while McKeany is around 55.5 million.
- Northstar Commodity is throwing out the lowest soybean quarterly stocks estimate at 1.270 billion bushels.
- CitiGroup is throwing out the lowest quarterly corn stocks estimate at 5.925 billion bushels. While ADM, Jefferies and McKeany are all thinking corn stocks will be over 6.2 billion bushels.
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather. I know as a producer, you may have questions as to how this pertains to your farm and your marketing, especially ahead of Friday's USDA Report. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow." Just click here -