Heavy bearspreading weighed on front month grain contracts Friday. December corn closed 4 ¼ cents lower at $7.37 ¾, November soybeans closed 2 ¾ cents lower at $15.61 ¼, and December wheat down 9 cents at $8.63 ¾.
Without much fresh fundamental news, grains followed equities lower. Equities have been steadily falling since September over uncertainty fears with the election and fiscal cliff approaching.
It was surprising to see such a large increase in corn longs by the managed money on today’s Commitment of Traders report. Using futures and options they added 26,288 contracts of corn to their net long positions now totaling 282,849. They also increased soybean net longs by 5,252 contracts and all-wheat by 14,128. Liquidation has slowed and we have been range-bound. We think this could continue for corn through the end of the year.
Soybean’s demand pace is still unsustainable. Are Chinese purchases stacked up front and will naturally slow as their needs are met or does the market need to see another price rally to ration further demand? Thursday’s soybean sales were below expectations but were still well above the average per week needed to meet the current USDA demand estimate of 1.265 billion bushels. Sales equated to 19.2 million bushels and we only need to average 7.5. This brings us to 72.7% percent contracted for the year (new record). When we are only looking at 130 million bushels in total carryout (4.5% of total use) we really can’t afford to raise exports. The market is counting on a decent crop in South America and we should be very price sensitive if we run into any weather issues along the way. So far we have seen dryness in Northern Brazil and slightly delayed plantings in Argentina due to heavy rains. They have not been large enough issues to expect a significant change in production.
While soybean demand remains strong corn demand is looking poor. This doesn’t mean I am necessarily bearish old crop corn. Our 2012 production is only estimated at 10.706 billion and the market is merely doing its job by holding back demand to meet its limited supply. I believe that we could stay range-bound through the end of the year unless we see a sharp rally in feed margins or another sharp rally in energy prices.
As of Wednesday October 25th the average price of December corn in Oct has been $7.51. The average price of November soybeans has been $15.39 ½. We are through 20 of the 23 business days which decide the harvest price for insurance, which basically means we can’t significantly change this price from here. With the fall crop insurance price set and your yields basically known it is time to re-evaluate hedge levels to see how to protect downside risk going into the winter. Please contact an EHedger broker to see how we can help you develop a strategy to finish out 2012 and look forward to the 2013 crop year. Phone: 1-(866) HEDGER-1. Have a great weekend!
Chart: December Corn (Red-50 Day Moving Average, Blue-100 Day MA, Grey-200 Day MA)
Chart: November Soybeans (Red-50 Day Moving Average, Blue-100 Day MA, Grey-200 Day MA)
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