May wheat is now back to a premium of 8 ¼ cents to May corn. Large amounts of wheat contracted for feed have helped this spread even out again. Weekly export sales totaled 888,500 MTs for 2012 wheat! Also the pendulum is swinging the other direction as the massive short position held by the "managed money" is being liquidated. Basically the short covering has been a big part of the rally as buy stops were triggered today. The corn-wheat price ratio should continue to move back in favor of wheat even if this latest move is from position liquidation (my opinion). Wheat has its own tight balance sheet and there are a few extra considerations for higher corn carryout now that less corn will be fed by comparable grain replacement as well higher imports. We could see a situation similar to last year where carryout estimates increase as we approach September 1st. Again, let’s get through March 28th when we can see the quarterly stocks report and gauge were we are. There are a lot of people that will argue the "corn just isn’t out there". The recent demand changes were made because of the "known" supply tightness and unbelievably strong corn basis. The recent WASDE estimates will likely have to change to account for the extra rationing.
Our long term outlook remains bearish for new crop pricing and we want to use these "dead cat bounces" to make those additional hedges where necessary. December corn is very close to its downtrend resistance.
December 2013 Corn
The corn-to-soybean ratio has traded lower for 5 trading sessions in a row. This spread is back to 2.25 to 1, which is adequately priced in our opinion. It will be an important barometer to watch for the next 30 days.
Chart: 2013 Soybeans / 2013 Corn
We want to remain hedged but still allow for plenty of upside should any weather problems arise. Please contact us with any questions or to review your current marketing plan in our proprietary farm management marketing software - AgYield.
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