EHedger Weekly Grain Wrap-Up 7/24/09

Published on: 16:06PM Jul 24, 2009
       EHedger Weekly Grain Wrap-Up
Sep 09 Corn
316 ¼  
- 10 ¾ 
Dec 09 Corn
327 ¼
- 11 ½ 
Aug 09 Beans
- 2 ½  
Nov 09 Beans
- 17 
Sep 09 Wheat
516 ¼  
- 15 ½
Sep 09 KC Wheat
- 12 ½ 
Sep 09 Min Wheat
591 ½  
- 8 ½ 
Dec 09 Meal
- 4.5
Dec 09 Oil
- 0.78

                  Corn closed 11-cents lower on the day and 4-cents lower on the week. An announcement by the USDA, which said that they would adjust the acreage numbers on the August report, helped rally corn prices yesterday. However, the expectation of large corn yields is keeping a lid on prices. Since the late planting, the U.S. weather has been ideal for most areas of the Midwest. Weather forecasts continue to call for rains throughout the Midwest and keep any threatening temperatures out. This can certainly change overnight, but if this trend continues corn should continue to break. There are still a lot of unsold bushels out there and that should cap any rallies as long as the weather stays good. We should see another sell-off as the farmer sells the remaining old crop bushels and makes room for the new crop. The sharp break in corn prices has helped margins return to the ethanol industry and has attracted foreign importers. The feeding industry has also improved from horrible feeding margins and some are even able to lock in some positive margins. Eventually, this will help corn prices but I think it is still too early. Just as the bearish fundamentals were ignored when the market was going up, any bullish fundamentals will likely be ignored on the way down. If the weather remains good, analysts will continue to increase their yield estimates. This attitude combined with old crop selling could cause prices to break much deeper than the fundamentals would suggest they should. December corn is already at 2 ½ year lows and the funds are now building short positions. Without any major weather problems around the world, it will be hard to “turn” the corn market… at least for now. The break in prices has caused option volatility to break, so if you haven’t made any sales and need to, I would sell your grain and buy some inexpensive calls. The next major support level for Dec. futures would be the contract lows of $3.04.
November soybeans closed 17-cents lower on the day and 9-cents lower on the week. Soybean prices have been going sideways now for 2 weeks and are looking for direction. The “tight” old crop supplies is keeping plenty of bulls in the market. However, the good growing conditions are weighing on new crop soybeans. It looks likely that China will end up releasing its corn and soybean reserves ahead of harvest. Currently, they are offering 500,000T of soybeans and 2 million T of corn reserves. Prices are too high so the domestic user is buying little. The government will likely lower their prices to sell off their reserves and make room for additional purchases next spring. Storage capacity is not nearly as high as in the U.S. and this should force the Chinese to release these supplies. Domestic basis levels have broken sharply in the past two weeks and this is likely the result of poor crushing margins and some farmer selling. There could still be some “fireworks” in the old crop soybeans, but we are getting close enough to new crop supplies that end users have likely covered their needs until then. We still have to get through the heart of the soybean-growing season. This should continue to cause nice rallies as people worry about hot and dry conditions. However, the weather has been very good to date, and if this pattern continues we should see sharply lower prices. Again, anything can still happen to the soybean crop. We could turn hot and dry and/or we could have a devastating frost. I completely understand this. I am worried however, that there is still a lot of unsold bushels for the new crop. With soybeans now the most “expensive” crop in the world, we should see oilseed acres increase sharply in the Southern Hemisphere. A good crop here and a good crop in South America could easily increase global stocks to record levels. If you waited for the corn and the wheat crops to get past the growing season in good shape before making sales, you ended up leaving DOLLARS/ bushel on the table. If you wait until the end of August to see if the weather turns “hot and dry”, you could end up having to sell soybeans much cheaper than here. Again, I am not saying that the weather is going to stay good, I am just pointing out the risk of not making any sales. If you have any questions please give us a call. 
Wheat closed 15-cents lower on the day and 25-cents lower on the week. It is hard to find anything bullish in the wheat market. U.S. and global stocks continue to build. We are now looking at a carryout above 700 million bushels here in the U.S. With large corn supplies and large global supplies, wheat is having a difficult time increasing demand. Global weather has been good in all of the major producing areas, beside Argentina. Argentina however has finally started to receive some decent rains this week and should receive more next week.  Record high wheat prices over the past two years have caused a massive increase in global production. As with corn and soybeans, wheat is on a very large break and due for a rally. Typically, wheat bottoms in July. Although this could certainly be the case this year, I wouldn’t expect a major rally off of the lows. The wheat market will need a new fundamental to turn prices higher from here.
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