EHedger Weekly Grain Wrap-up 8-14-09

Published on: 15:33PM Aug 14, 2009

Sep 09 Corn
319 ¼  
- 5 ¼
Dec 09 Corn
327 ¾
- 4 ¼
Aug 09 Beans
- 87 ¼
Nov 09 Beans
981 ½
-37 ¼
Sep 09 Wheat
481 ¾
+ ¼
Sep 09 KC Wheat
508 ½
Sep 09 Min Wheat
549 ¼
-1 ¼
Dec 09 Meal
Dec 09 Oil

Grains Close: Soybeans Continue Slump; Corn, Wheat Also Softer
  • Soybeans Retreat Another 35+c On Heavy Profit Taking
  • Bearish Technical Pattern Spurs Chart-Based Liquidation
  • Friendly Weather Outlooks Threaten More Weakness Ahead
The soybean market saw an extremely volatile week. New crop prices closed more than 35 cents lower on the day and 57 cents lower on the week. November futures had over an eighty-cent range in the last two trading sessions alone, as jittery traders and mixed technical signals spurred heavy activity.
People continue to ask why we had such a large break the past two days. The real answer is that in the current soft demand environment, new crop beans had no business being over $10 in the first place! It appears people were taking tight old crop fundamentals and trying to apply them to the new crop. However, it now appears that old crop may not even be as tight as many people thought, as commercial players delivered beans today, and Aug beans closed 87 ¼ lower.
In addition, basis levels are not as strong as they would be if beans were genuinely as tight as many analysts have claimed. In the report this week, the USDA ending stocks were indeed a bit tight, but this was using a yield of 41.7. If friendly growing weather continues, and we have a normal frost date, the yield could be significantly higher than this, which will change the carryout number significantly.
Furthermore, we continue to believe that the USDA and many other analysts continue to overestimate demand for next year. Sure, demand could turn out to be pretty big, but it would take really cheap beans to accomplish this.
Obviously things could change if the weather suddenly gets drier and much hotter, but at this point November beans above $10:00 just does not make sense - and if the bean crop finishes well, we still have significant downside risk left in this market.
This does not mean we’re not going to see the occasional rally. This market is will continue to overreact to every rumor that hits the wires, but at this point farmers should take advantage of these rallies until something changes with the big picture fundamentals.
Dec corn put in a quiet but soft showing to end the week, and closed 4 ¼ cents lower on the day and largely steady on the week. New crop corn has now settled below $3.40 but above $3.20 for five out of the past six weeks, and in our opinion is poised to take another leg lower in the coming days towards $3.00 given the still friendly weather outlooks and that fact that Wednesday’s hefty yield increase by the USDA is still fresh in traders’ minds.
The production side of this market clearly has the potential to be very large, so focus over the coming weeks will be on how well can the consumer side of the equation hold up. With the hog industry in historic disarray and cattle producers also struggling, corn’s prospects appear a little grim at the moment. But, if prices get low enough (into the $2s) then real demand will be re-invigorated, which may be what’s required to start the next bull market.
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.
Chicago Dec wheat futures resumed their recent downtrend and closed out the week at their lowest level in more than 2 years. A breach of the support in place around $5 looks likely very soon, and there’s a chance that a swift slide towards $4.50 takes place once that key psychological perch is lost.
Producers need to move fast to top up sales before a potentially painful stumble going into September.

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