EHedger Closing Grains Commentary 9/30/09

Published on: 14:06PM Oct 12, 2009

Dec 09 Corn
+ 2
Nov 09 Beans
926 ¼  
+ 9 ¼
Dec 09 Wheat
456 ¾ 
+ 9 ¼
Dec 09 KC Wheat
+ 8 ½
Dec 09 Min Wheat
490 ¼   
+ 7
Dec 09 Meal
+ 0.5
Dec 09 Oil
+ 0.44

Corn, soybeans and wheat all closed higher. Corn closed 14-cents higher on the month, soybeans closed 52-cents lower, and wheat closed 41-cents lower. The Sep.1 stocks report and wheat production report came out this morning. The report was bearish for wheat and soybeans and slightly bullish for corn. Wheat stocks came in 84 million bushels higher than expected and production came in 24 million bushels higher than expected. The wheat market has been breaking on anticipation of a larger spring wheat crop, so these numbers weren’t a huge surprise. The corn stocks figure was 45 million bushels less than the average guess, so again, no big surprises there. Soybean stocks came in 27 million bushels higher than the average guess at 138 million bushels. 
With the report out of the way, the market quickly switched over to trading outside markets. The dollar was down sharply and crude oil was up sharply. The stock market was all over the place, trading between sharply lower to higher all day. Most markets ended the day strong as end of the month buying came in late. This is the type of rally we have been looking for. We could still see some additional buying as the forth quarter begins and new money enters the marketplace. I would still use this opportunity to get caught up on sales by Friday. Our markets tend to rally going into the end of the month and then tend to sell-off. Unless something fundamentally changes, I expect the market to start selling off next week. So far, harvest pressure has been completely absent. Soybean harvest has been picking up, and we should see a lot of soybeans harvested in the next week. So far, yields have been running high on average. If this trend continues, we should see the national average continue to increase. With the ’08-09 ending stocks coming in at 138 million bushels, a higher production figure on the October USDA report could raise the ’09-10 ending stocks figure close to 300 million bushels. With soybean harvest picking up quickly and with China closed for the holidays next week, soybeans could remain the most vulnerable for a sell-off next week. To add to the confusion, COFCO (largest Chinese soybean buyer) reportedly announced that they would refuse delivery of any soybean cargo from the U.S. if that cargo contained GMO corn dust. This is likely in retaliation to the U.S. tariff on Chinese tires, but nonetheless very scary when there are a record amount of soybeans “on the books” to China. 
                 Corn harvest should pick up next week in the Midwest as well, but there are still many areas that will not be harvesting for 2 weeks or so. Most corn being harvested in Illinois is running around 30% moisture. Although the yields are coming in high, the time, money and effort in drying down the corn will be very troublesome for producers. Hopefully Mother Nature will be kind and let the crop dry down before too long. As far as prices go, I still look for this recent rally to top out shortly and for prices to break back towards the lows once harvest picks up. The fundamentals for corn are improving in my opinion, but there is a big crop on the way and there are a lot of unsold bushels. Most farmers have crop insurance and I am worried that the market will do what it does best and hurt most of the people. With the minimum price set at $4.04 last spring and with most producers likely to have yields that are above their APH, a rally in futures during the month of October into the $3.60-$3.70 area could be devastating. If the harvest price ends up around $3.60, many producers will not receive a crop insurance payment this year. This scenario would leave many producers with zero protection through the winter. With harvest delayed by a good 2-3 weeks, the market has not seen the normal harvest pressure by the middle of October that it would in a normal year. If the market doesn’t see harvest pressure until mid-late October, the producers will be forced to sell their bushels or sit on them and hope for a spring rally. This was a very long and drawn-out “what if” scenario, but since October is the month when most harvest prices are set fro crop insurance, it is something to think about.   Obviously the market could keep rallying or break tomorrow, but you should be looking at your crop insurance and develop a plan for the next 30 days.
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