EHedger Closing Grain Commentary 2/10

Published on: 15:38PM Feb 10, 2010
Market Settlement Change Low High 
March corn 361 3/4 3 1/4 355.25 365.5
March wheat 496 3/4 14 1/2 480.75 503
March beans 937 1/2 13    918.75 939.75
March soymeal 276.40 5.80 270 276.5
March soyoil 38.27 -0.11 37.92 38.52
Apr live cattle 91.55 0.075 90.93 91.70
Apr lean hogs 68.175 0.33 67.73 68.5

The grain markets closed higher for the day. Yesterday’s weak markets were today’s leaders. Both soybeans and wheat closed with double digit gains. Corn, soybeans, and wheat seem to be taking turns as to which commodity leads the strength/weakness. Today’s close puts all three markets above Monday’s close and pre-USDA report. A big theme today was bull spreading soybeans. The March contract led the way behind tighter than expected ending stocks. November has been limited by available US acres and South American production. Brazilian production is expected to be a record, but their logistics will be an issue in getting soybeans to the market quickly. Today also saw a round of profit taking in long soyoil/short soymeal. The buying from last week’s lows has shifted the near term trend. Today’s action may signal additional buying for the remainder of the week, yet plenty of sellers remain above the market. The information below looks to be the main themes for the rest of this month. 
The supply/demand table for corn saw ending stocks slightly lower than estimates, 1.719 bil bu vs. 1.747. Ethanol usage was raised 100 mil bu, while exports were lowered 50 mil bu. Ethanol usage now stands at 4.3 bil bu, a 623 mil bu increase from last year at this time. This reflects 33% of total usage dedicated to ethanol and also puts current plants at full capacity. The changes are not surprising. Ethanol margins have been extremely strong, while corn exports have been underperforming. Feed usage was left unchanged, likely due to the fact that the increased ethanol production will supply extra DDGs for feed usage. The supply side of the equation was left UNCHANGED. There continues to be speculation that this figure will be adjusted in March, but that is more than a month away and our expectations are not for any major revisions at this time.
With the report out of the way the corn market will now have to wait until March for new information. Many farmers need to move corn on rallies due to storage and quality issues so this will limit rallies. However, the dollar has slightly pulled back from 8-month highs. Funds have the buying capacity to overpower the markets in the short term and push them higher. For this reason it is a good idea to have standing orders in place to catch up on sales. A rally to $3.80-3.95 in May and December from $4-4.20 are possible targets.
The supply/demand table for soybeans was friendly, but not unexpected. Ending stocks were lowered to 210 mil bu from pre-report estimates of 217. The tightness in ending stocks was a result of a 10 million bu increase in crushing and a 25 mil bu increase in exports. This puts the stocks/use ratio at 6.4% vs. 4.5% last year. Exports have been strong in large part to Chinese buying, but the question remains how much this figure will decrease once South American soybeans become available to the world market. Conditions there have been mostly ideal and their harvest is getting started. This means that additional hedge pressure will come forward. The USDA raised Brazil soybean production to 66mmt (1 mil tone higher). Also, the availability of additional acres for spring planting will limit rallies in the new crop. Higher crude oil and the positive EPA ruling have kept soyoil supported. However, history has told us before that it is hard for soybean oil to lead the rest of the soy complex higher. Therefore, use spillover strength and look to catch up on soybean sales at $9.50-9.80 in May and rallies towards 9.50 in November. The $9 level in November will continue to be tested this week. 
The ending stocks for wheat were higher than pre-report estimates (981 mil bu vs. 974). The only change was an increase in imports. Despite wheat near contract lows, we are not seeing US wheat find business. The world market still has plenty of available wheat and the US stocks/use ratio is an enormous 49% vs. 29% a year ago and 13.2% two years ago. Yet, there are some interesting developments at work in the wheat market. Hard red winter wheat lost a substantial number of acres and many areas were planted in poor conditions. The fact that the wheat market has already factored in bearish information may encourage buyers near contract lows (July wheat below $5). Yet for now wheat looks to continue in step with the corn market.  

As always, please call us to speak about your specific situation.

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