EHedger Weekly Grain Wrap-Up 6/19/09

Published on: 18:58PM Jun 19, 2009
Weekly Grain Wrap-UP
July 09 Corn
399 ¼
- 4
Dec 09 Corn
419 ½
- 4 ¼
July 09 Beans
- 34 ¾
Nov 09 Beans
- 37 ½
July 09 Wheat
555 ¼
- 5
July 09 KC Wheat
615 ¾
- 3 ¼
July 09 Min Wheat
- 8 ½
July 09 Meal
- 15.4
July 09 Oil
- 0.42

Corn closed 4-cents lower on the day and 26-cents lower on the week. This is the lowest weekly close since 4/24. After hitting 6-month highs last week on planting worries and a bullish USDA report, corn has since sold off over 50-cents. With the crop now in the ground and growing, the market was forced to look at demand. Weak export demand and a collapsing feed industry was too much for the corn market to handle. The chicken industry has been cutting production for over a year due to poor margins and is currently running about 5% behind a year ago. June is the 22nd consecutive month that the hog industry has been running with negative margins. Currently, producers are losing around $30/head for a combined total of around $60 million/ week as an industry. (The Chinese producer is only losing $20/head!) The U.S. cattle feeder is currently losing around $50/ head. Cattle on Feed came in at 96% (of a year ago) as of June 1st and the Cattle Placed in Feedlots during May was 86% of a year ago. This is the lowest May Placement figure since 1996. The Dairy producer is still losing $100/ month on every cow! Okay, enough with all the bearish news. On the bright side, ethanol margins are finally improving. The recent run in gasoline prices has helped margins to improve to around 30-cents bushel. This is the best since last October. Also, there is still a good chance that we ended up losing acres this spring. The dollar has obviously been under pressure and this has drawn in large sums of money to our markets. If this continues, we could see corn prices hold around these levels. As you can see in the chart below…

            Old crop soybeans closed 35-cents lower on the day and 66-cents lower on the week. New crop soybeans closed 38-cents lower on the day and 70-cents lower on the week. Tight Old crop supplies and a bullish USDA report last week helped drive old crop beans up towards $13 and new crop soybeans to $11/bushel. A late start to planting and the old crop tightness has caused many analysts to estimate a low carryover again next year.   Although this could certainly end up being the case, I would be very cautious on this presumption. First of all, these estimates are based on record demand projections for next year. Again, this could happen but I don’t see the fundamentals (right now) to support this theory. Currently, soybean oil stocks are at record levels. I have already mentioned the situation in the animal sector. So, domestic demand is likely to fall once again next year, so who is responsible for this increase in demand? Currently, the USDA and the Chinese National Grain and Oils Information Center (CNGOIC) are both estimating a decrease in Chinese soybean imports next year. The USDA is estimating a small decrease and CNGOIC is estimating a decrease of 3 million MT. The argument is that soybean meal exports and soybean exports will be huge to compensate for the drought in Argentina this year. Chinese soybean meal usage was down 15% for May versus last year and the Chinese hog producer is losing money due to the Chinese government propping up grain prices. Who is consuming more soybean meal this year than last year? I won’t argue that meal exports won’t be large this fall and winter, but what about next spring? Brazil and Argentina will likely grow another crop next year. Currently, Argentina is projected to increase soybean acres to a record level of 20 million hectares as wheat acreage is expected to decline once again. With normal crops next year, we could see South American production increase by 20 Million MT. What about the U.S.? We will see what the USDA says about soybean acres on the 30th, but right now it looks like acres should increase. The USDA is estimating that global stocks of soybeans will increase by 10 million MT or 20% next year. This is with record demand and without an increase in U.S. acres. As with corn, soybeans are approaching some key technical levels, and will need to hold here to avoid further liquidation. The funds were long 114,000) contracts (570 million bushels) of soybeans and 54,000 contracts (10.8 million tons) of soybean meal.
Wheat closed 5-cents lower on the day and 29-cents lower on the week. Good weather across the globe (exception being Argentina) has helped the wheat market break as we head into harvest. Large global wheat supplies should keep rallies tempered for now. Export demand has remained weak and this will need to improve after harvest to help the wheat market stage another rally. If corn prices continue to come under pressure in the coming weeks, we could see wheat prices break to new contract lows into July. After harvest, we will need to see how demand and the global wheat markets are faring.
 I know that a lot can change. We could grow a bad crop in the U.S. or bad crop in Brazil or a bad crop in Argentina or have bad crops in all three. I certainly don’t want to be too bearish here, but it seems like everyone is leaning one way. In the long run, I still think…
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