EHedger Closing Grain Commentary 12/17/10

Published on: 18:41PM Dec 17, 2010

The market closed out the week with a rally for corn, wheat, and soybeans.  Overall on the week March corn was up 22 ¼ cents, Jan soybeans were up 25 ¾ cents, and March wheat fell by 18 ¾ cents.
Coming in from the overnight session grains were called mixed to lower but found plenty of support after the opening bell.  Informa released their estimates of final 2010 production, as well as expected acreage for 2011.  For 2010 corn production, they are projecting 12.539 billion bu which is right in line with the USDA's estimate.  Soybean production is estimated at 3.378 billion bu, also right in line with the USDA's estimate.  For 2011, they are projecting an increase in corn acres to 90.7 million vs 88.2 last year.  They are expecting bean acres to be 77.5 million acres vs 77.7 last year.  Informa is expecting a jump in wheat acres from 53.6 million last year to 56.1 million this year.  Cotton acres are also projected to jump to 12.8 million vs 11 million in 2010.  Overall they are expecting to gain an extra 6.6 million acres in 2011.
The house ended up passing the Tax Bill late Thursday night and was signed by President Obama today.  This included the Ethanol and Biofuel tax credits.  Also today, Cattle on Feed came out mostly neutral for cattle but slightly friendly grains considering we will have higher feed needs.  We put 3% more on feed, and weights were skewed to below 800 lbs. The Commitment of Traders report shows the large specs increasing their net long corn positions by a sizable 23,308 contracts using futures and options.  They also increased their soybeans and wheat positions as well.
The bulls are looking at tight supplies and dry South American weather for support.  The battle for acres in early 2011 will be the best chance to see this rally continue.  The bears are looking at the latest USDA ending stocks report showing increases in US corn and World wheat.  Also, soybean exports came in well below expectations this week reflecting cancellations from China.  Until more is known from the January reports, it may be hard for the bulls to keep this rally going into the end of the year. 
Even though we can see reasons for the market to be friendly in 2011, we still want to remain adequately hedged incase the unexpected happens.  For example, last year it took until the January report before grains broke, which lasted all the way into early summer.  Right now we are staying well hedged and keeping our upside in the spring call spreads.  Please contact your broker if you would like an overall analysis of your 2011 marketing year.
Next week the markets will be open through December 23rd.  They will close for Christmas Eve and reopen that following Sunday.  Between now and then we could continue to see high volatility on low volume.  If you are looking to add additional protection, please don't hesitate to give your broker a call.


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