EHedger Closing Grains Commentary 4/28/09

Published on: 18:16PM Apr 28, 2009
May 09 Corn
+ 2 3/4
July 09 Corn
383 1/2
+ 2 3/4
May 09 Beans
989 1/2
- 15 1/4
July 09 Beans
- 14
May 09 Wheat
510 1/2
+ 2 1/2
July 09 Wheat
+ 2 1/2
May 09 Meal
- 2.1
May 09 Oil
- 0.64
Selling pressure kept old crop soybeans on the defensive Tuesday, as rumors circulated that China was set to cancel on a recent old crop purchase or roll that order forward into new crop months. We don’t know for sure whether these rumors are true or not, but for our part we’ve been bracing for such moves for some time given that nearby prices have sustained a strong premium to new crop prices for more than a month, even as China’s purchases have scheduled shipments for deeper and deeper into the year. Clearly, China’s needs for soybeans are hefty – on average they import roughly 4 million metric tons per month – but there has been talk lately that domestic inventories there are climbing, which suggested their interest in buying nearby beans at a sharp price premium would be about to wane. Further, prices for soybeans shipped out of the US Gulf – our main export channel – have been softening for the last week or so, which again hinted at diminishing buying interest. 
If it is true that China has cancelled some recent US purchases, or rolled some old crop orders until later in the year, then there could be a further steep decline in July prices relative to November contracts. The key question is whether China has any further old crop bean needs, or if they’ve got all the soybean stocks they need until the US harvest. Considering China’s dominance on the demand side, if we see no further old crop bean buying from them, then old crop prices could enter a tail-spin. But, if we continue to see sporadic Chinese old crop purchases, then a more orderly decline in July prices will ensure.
Either way, it appears to us that old crop prices are destined to struggle avoiding further weakness as we go forward. 
Corn and wheat managed to settle slightly higher Tuesday, although much of the buying seen here resembled trader short covering (held against long bean positions) more than fresh end-user buying. The weaker US dollar was broadly supportive, but weakness in the crude oil, gold and copper markets did little to spur end-user interest in corn or wheat throughout the day.
Overall, we are anticipating more choppy movement across the board over the coming days as traders adjust positions across the grains markets in response to the continuing talk of Chinese order cancellations, as well as the still uncertain outlook for Swine flu and it’s impact on demand for soymeal. But the big picture theme here is that all the major US crops will struggle to sustain rallies as farmers here crank up planting activity. Monday’s planting progress report indicated that US farmers are already making real progress in corn and spring wheat, and are starting up on the soybeans. These plantings will only keep climbing in the coming weeks, which will draw people’s focus towards the upcoming supplies, so we anticipate that any upcoming rallies will be short-lived.
As a result, we strongly suggest that the few customers out there who have not yet hedged their intended production to get in touch with us as soon as possible to put a solid marketing plan in place and protect yourselves from the likely price weakness that we expect over the summer.
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