EHedger Weekly Grain Wrap-Up 6/5/09

Published on: 16:18PM Jun 05, 2009
Weekly Grain Wrap-UP
July 09 Corn
- 4 ½
Dec 09 Corn
467 ½
- 4
July 09 Beans
1225 ½
- 4 ½
Nov 09 Beans
1061 ¾
- 19 ¾
July 09 Wheat
- 12 ¼
July 09 KC Wheat
- 15
July 09 Min Wheat
743 ½
- 17 ¾
July 09 Meal
- 3
July 09 Oil
- 0.61

Corn, soybeans and wheat all closed lower today. After an extremely volatile week Dec corn closed 8 cents higher on the week, Dec wheat 10 cents lower, and Nov soybeans were basically unchanged. This volatility should continue the rest of the month. We have seen good progress in plantings recently but the bean market will be closely watching Monday’s planting progress report. Also, the market should see some positioning ahead of Wednesdays USDA’s S&D report. Furthermore, everyone has their eyes on the acreage report at the end of the month, which should have a large impact on the overall market direction. If this was not enough, the extremely volatile outside market should also continue to have a large impact on the grain markets.
Corn has been in a large, sideways range since last October and is now at the top of that range. Corn has been torn in two directions. Weak demand and large farmer ownership has been weighing on corn rallies and a wet spring, weak dollar and strong outside markets have all supported corn on breaks. With most of the corn now planted, there should continue to be corn for sale above the market. If the new buying slows down, we could see a nice setback in corn as we head into June. Soon, the corn will be knee-high and people will be talking about "how good the crop looks"...just like every other year. By mid to late June however, the market will start looking towards the June 30th report to see how/if acres have changed since the Planting Intentions report. The possibility of losing corn acres should keep corn supported on any large breaks until then. Although demand is currently taking a back seat, eventually it will matter. Hogs and cattle are hovering prices and continue to struggle. This is causing further herd liquidation in the hog market. The cattle industry has not seen the liquidation yet, but that could happen soon. Margins continue to fall deeper and deeper into the red. The chicken producer has been liquidating for a year and the dairy industry is in ruins. So, if the corn market runs up to $5 or higher on production fears and/or new buying, a producer should take advantage. A sharp run-up from here would likely cause the cattle industry to start liquidating the herd size. So, even though I understand why we could see corn prices rally over $5 this summer, I do not see how we can keep prices there unless something changes. Once we liquidate animal numbers, it takes time to build them back up.
            Nov Soybeans took out the recent highs to start the week but closed unchanged after an extremely volatile week. Soybeans have now rallied $4/bushel since last December! Relentless Chinese buying, a bad Argentine crop, strong commodities markets and a sharp reduction in U.S. acres all led to the rally.   June will be a very important month for the soybean market. China has been supporting their domestic prices by stockpiling nearly 7 million tons. This has caused the Chinese crusher to import cheaper soybeans. Because Argentina harvested a crop that was 35% less than originally thought and the farmer refused to sell soybeans due to high export taxes, Brazil and the U.S. had to make up the difference. Week after week of strong sales to China, left the soybean market no other choice but to ration demand. The soybean market inverted sharply and remains inverted in all contracts through November of 2010. With the Planting Intentions report showing a sharp drop in total acres, a tightening '08-09 carryover caused many to raise demand forecasts and lower the carryout for the '09-10 crop year. So now what? The Chinese have said that they will buy up to 7 million tons of domestic soybeans through June 1. Now that the Chinese crop is planted, does the government release some reserves to help the domestic hog and chicken producer and/or roll some of their purchases to new crop to take advantage of the large discount? Most of the large Chinese purchases have been for new crop lately, so we will have to see what happens this month. 
On June 30th, we will get the next acreage estimate from the USDA. Did soybean acres increase since the March Intentions report? The market has tried its hardest to get all the acres it can, so I would think acres would increase in the report. Corn has rallied over 80-cents since the Planting Intentions survey, soybeans have rallied $2.70/bushel and spring wheat has rallied over a $1.80/bushel. Can't a farmer make money planting $4.50 corn, $10.50 soybeans or $7.50 spring wheat? If so, why would he let millions of acres go fallow? If the farmer did decide to plant these acres, wet weather in the Delta, Eastern Midwest and Northern Plains this spring should have caused the majority of these acres to go to soybeans. We will have to wait and see what the report shows, but once again, June will be a very important month for the soybean market.
Wheat was sharply higher to start the week but actually set back to close lower on the week.   Worries over spring plantings combined with a large influx of capital fueled the rally this month. Inflationary hedges have caused funds to buy all commodities. One of these commodities is wheat. With such a small crop size relative to the open interest, it is difficult for the wheat market to absorb such large amounts of buying. Even with demand remaining weak, good weather around the globe and the U.S. crop close to being harvested, the SRW market was able to rally nearly as much as the old crop soybeans this month. Without new money continuing to pour in, wheat should have a very sharp break from these levels as we head into harvest. However, that is a very large "if". In these situations, the SRW contract becomes useless as a hedging mechanism. The CFTC and CBOT have been working on fixing the situation, and hopefully the changes that we see in July (increasing deliverable stocks by 80 million bushels and increasing storage costs) will help. 
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