EHedger Afternoon Grain Commentary 5/16/12

Published on: 16:23PM May 16, 2012

Grains finished sharply higher with the front month contracts leading the way again.  July wheat was the strongest finishing 30 ¼ cents higher at $6.38 ¾, July corn 22 ¾ cents higher at $6.20, and July soybeans 9 cents higher at $14.22. 

Short covering in the wheat market helped spur the July Chicago wheat contract to rally up and settle directly on its 50 day moving average.

Chart: July Chicago Wheat (red line is the 50 day moving average)

July Wheat

Dry weather in Russia is the main headline behind today’s rally.  Last week’s report showed a large decrease in world wheat ending carryout from larger feed demand.  The last COT report shows the funds still net short 46,187 contracts of SRW wheat using futures and options.  With such a large spec short in wheat this leads me to believe that these were exiting positions, but we will have to see what open interest did.

Corn was also sharply higher today which was in large part due to the wheat rally.  The discount wheat has held to corn for the past year has forced some international demand away from US corn.  Obviously if wheat gets to a large premium to corn again, we could see demand for US corn go up.  Corn also had slightly "bullish" ethanol numbers as well as some export business reported by the USDA.  The EIA ethanol numbers at the 9:30 am open showed higher production and lower stocks.  This is the third week in a row that we have seen an increase in ethanol production and haven’t seen production this high since March 2nd.  The USDA export sale announcement was a little deceiving this morning showing a sale of 900,000 MTs of US Corn to China between old crop and new crop.  It was actually only 240,000 MTs of new crop that was sold and the rest of it was just previous demand that was switching from "unknown destinations" over to China.

Soybeans had a large selloff overnight only to come back to positive territory during the day session on heavy bull-spreading again.  The July–November soybean spread is back to +$1.19 ¾ on today’s settlement which is not far from its $1.33 high from April 27th. 

Chart: July – November Soybean Spread 

Soybean Spread

With corn planting well ahead of schedule and a massive amount of corn acres, there is not a whole lot that can be viewed as "bullish" for new crop corn right now.  The USDA increased demand by over a billion bushels on the last Supply and Demand report and they still have carryout expected to be over 1.7 billion.  This leaves the market with plenty of leeway on national average yield.  For the corn market to rally from here it would most likely have to be a large impact weather event.  Obviously today it was also helped out by a sharp move higher in the old crop.  The next target to sell Dec corn is at the 50 day moving average of $5.41 ¾ if it can get there.

Chart: December Corn  

Dec Corn

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