EHedger Afternoon Grain Commentary 3/1/13

Published on: 15:47PM Mar 01, 2013

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Grains and oilseeds closed mixed Friday on medium volume. May soybeans closed 8 ¾ cents lower at $14.43 ½, May corn 5 cents higher at $7.08 ½, and May wheat up 6 cents at $7.20 ½.

Soybeans were unable to carry yesterday’s strength especially with weaker outside markets this morning from the Sequester fears.  Equities were able to rebound before the day’s close but energy prices stayed weak.

Informa released their South American production estimates at 10:30 but came in as expected.  The USDA announced the sale of another couple of cargoes of new crop soybeans to China this morning.  Otherwise there weren’t any major headlines to affect pricing today.

Next week we have the March WASDE report on Friday the 8th.  The planting intentions report will be on March 28th, which is one day earlier than normal due to Good Friday.  This year’s crop insurance prices are very similar to last year with the corn at $5.65 and soybeans at $12.87.  That puts the soybean-corn ratio at 2.2779 for 2013 compared to 2.2095 last year.  Now that we have guaranteed revenue known for US producers it may put downside pressure on new crop prices as we get through planting barring any weather problems.

Old crop products are in a very tight supply situation and may be the sole reason for prices to stay supported near-term.  China has been a very aggressive buyer of US soybeans and with logistical concerns out of Brazil the situation could easily produce a lot of price volatility in the coming months.  At this point in the year we already have contracted 1.2713 billion and have shipped 1.101 billion!  That means we need to sell at a pace of only 2.6 million bushels per week (70,761.6 MTs) to meet the objective set.  To put it in perspective, look at last year.  From this week in 2012 until September 1st 2012 we sold another 362.8 million bushels of soybeans!  Obviously we can’t afford to do that this year or we would run out of soybeans.  With the soybean volatility index running at only 20.63, it looks relatively cheap for buying options for upside potential against sales.  Note how far below the 200 day moving average the index is as well as from last summer!

Soybean Volatility Index

Soybean Volatility Index

Wheat is back to a large discount to March corn. With wheat comparatively cheap we have to assume that wheat feeding will increase substantially in the US again.  Just take last year for example.  Wheat was trading in-and-out of a discount to corn which helped propel wheat feeding by 213% from the year before!  For the 2012/2013 marketing year we ended up feeding 350 million bushels of wheat. Since wheat has its own tight balance sheet and we are once again competitive on the world market, we may see wheat supported as long as old crop corn doesn’t slip lower again.

For now we are staying with our current sale recommendations but with the insurance guarantee it may change how much downside coverage you need.  If you would like to get the EHedger grain letter full time, please sign up using the link at the top of the page. Have a great weekend!

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