EHedger Closing Grains Commentary 8/12/09

Published on: 17:17PM Aug 12, 2009
Sep 09 Corn
330 ½  
+ 4
Dec 09 Corn
+ 5
Aug 09 Beans
- 1 ½
Nov 09 Beans
+ 5 ½
Sep 09 Wheat
+ 4 ¾
Sep 09 KC Wheat
519 ¼ 
+ 2 ¼
Sep 09 Min Wheat
- 5 ¾
Dec 09 Meal
- 1
Dec 09 Oil
+ 0.47

Grains Close: USDA Report Has Few Surprises; Mkts End Firmer
  • USDA Keeps Corn & Bean Acres Largely Flat
  • USDA Ups Corn Yield By More Than 6 Bu To 159.5/Acre
  • USDA Trims Soybean Yield From 42.6 To 41.7/Acre
  • Feed Demand Woes Persist As Hogs Fall To Fresh Lows
The USDA increased US soybean planted acres by 200,000 to 77.7 million in today’s report, but trimmed the yield to 41.7 bushels an acre (from 42.6 previously). The acreage revision makes sense, as many producers who were unable to plant corn in certain areas were motivated to plant extra beans due to the attractive prices that prevailed in June. The yield adjustment, however, makes less sense, as the current weather conditions remain very conducive for crop growth. We have heard some ramblings from other analysts about early frost potentially nipping soybean yields in the Dakotas etc, but think it’s ridiculous to worry in August about the possibility of frost in October.
Also, the main problem with the bean crop so far has been a lack of heat units, so if the beans can catch up on that front over the next month, then their collective development will be more or less complete by the normal frost dates. In short, we think the lower yield estimate is pretty bogus, and will likely revert higher in due course as long as we get heat and the occasional rain over the rest of this month. And whether it’s 41.7 or 42.6, we’ll still have a record production total given the record planted acres total that is now in play.
Such a high output total (3.2 billion bushels) will force the market to shift its focus toward demand, and the more closely we look at the consumption side of this industry, the more worried we become about the downside potential of bean prices over the coming months. China has been the only strong buyer we’ve had, and to be sure they’ve bought enough lately for the rest of the world not to matter. But the rest of the World WILL matter going forward, especially once South American output rebounds and competes for business on the export stage as 2010 rolls around.
So, once again, we strongly recommend producers use any upcoming price rallies as selling opportunities before prices likely spiral lower as the US harvest gets underway.
The USDA left corn planted acres flat at 87 million, but bumped the yield by over 6 bushels to 159.5/acre. The new production total of 12.761 billion bushels is big by anyone’s standards, and begs the question whether demand will be there to use it all.
The USDA took strides to claim the demand will be there, by boosting exports by 150 million bushels and feed demand by 100 million. However, we believe such projections are foolish given the grim state of the global feeding industry, and the fact that corn has to contend with an abundance of feed wheat and DDG’s over the next year.
Still, the USDA’s numbers are what they are, so we now have to look at what the price needs to do in order to entice more than 12.5 billion bushels of usage. In our opinion, the only way to motivate and sustain such aggressive demand is for prices to keep grinding lower so that corn becomes too cheap not to use. That’s not a pleasant prospect for any grower, we know, which is why we have been repeatedly stressing that producers top up sales during rallies over the past several months.
Looking forward, we believe corn prices have the potential to whip around for the near term on position adjusting, before heading quite steeply lower towards the end of the month and into the fall. Consequently, we once again urge producers who have not sold much of their 2009 crop to top up sales on near term rallies, and take protection from the upcoming slump.
We also have recommendations for your 2010 crop, so please call us for a full consultation about your positions and opportunities over the coming weeks.
The USDA repeated it’s generally bleak assessment of the wheat market Wednesday. World ending stocks rose again to 187.56 million tons – a fresh 8-year high – while demand remains patchy due to the tattered feeding industry and broad global economic malaise.
Chicago Dec wheat managed to score a 5 ¼ cents gain on the day nonetheless, but the strength seen was more to do with short covering and position adjusting than from fresh consumer buying, so our expectation is that wheat prices will favor the downside again soon. As we stressed on Tuesday, a drop into the mid to low $4s can’t be ruled out in the coming weeks.


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