EHedger Closing Grain Commentary 4/11/11

Published on: 19:20PM Apr 11, 2011

Corn rallied to new contract highs on Monday while beans and wheat couldn't derive the same support.  May corn finished 8 cents higher at $7.76, May soybeans finished 23 ¾ cents lower at $13.68 ½, and May wheat finished ¾ cents higher at $7.98 ¼.
It looks like the market is still brushing off April's Supply and Demand report which shows corn and soybean ending stocks unchanged from the March S&D report.  The market is doing its job to try and ration off demand, the question is how far do we go? We have talked about where the blender could inevitably end up cutting off the discretionary blending.  From here we think the new crop is the place to be for the bulls so the December and November call spreads we have on are still the ones we would stick with.  It is the new crop corn that will have to make up for the low stocks to usage ratio and if there are any major weather problems we may end up getting a continuation of the rally. 
For soybeans, the spreads have been very weak in prior weeks, and for the first time since 2009, the July 11-November 11 soybean spread settled at a carry.  This is a big deal given the USDA projects a 140 carryout.  But we have had another record year in Brazil, and world carryout is expected to be higher than original projections.  Today we also had Cofco lowering the expected Chinese bean imports to 53-54.  They also said they may defer or even cancel soybean cargoes due to poor crush margins.  This certainly explains the heavy selloff today in soybeans. 
The CFTC's Commitment of Traders report confirms that the funds have came back strong into this market.  They increased their net long positions by over 40,000 contracts of corn, 3,000 contracts of soybeans, and 19,800 contracts of all wheat.
Poor weather and poor crop ratings could keep wheat prices supported with corn.  The latest crop conditions show winter wheat at only 36 percent good to excellent.  This compares to 65 percent last year and 50 percent 10 year average.  The variable rate storage charge still has the wheat spreads at a very large carry.  We have seen wheat being fed in the global market, and eventually we could see wheat fed here in the United States.  This would mean we could see wheat supported on any further corn rallies.
Having good sales on the books and having lots of upside potential with the call spreads is still a great strategy.  If you would like to go over your current sales/positions please be sure to check with your broker before things get too busy in the coming weeks.


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