My Corn, Bean & Wheat Projections...Where Prices Are Headed.
Nov 05, 2010
I have included below some highlights, commentary, and marketing ideas from this weeks report. If you are not getting my information sent to you daily make sure you get singed up using the link below, there is No Cost and No Obligation. Hope the information helps prepare you for next weeks USDA report, have a great weekend.
The Week In Review updated 11/5/10
- The Fed announced that it would buy back $600 billion in long-term debt. The announcement was fairly uneventful, but should certainly prove to be long-term bullish the commodity markets.
- With the republicans regaining office many traders think the lame duck session may pass the $1 blenders credit for biofuel on the back of several other bills pending. The biodiesel credit only amounts to $600 million, nothing like the $5 billion dollar ethanol credit.
- There has not been a lot of export interest in soybeans as of late. I am hearing that most importers may be fairly well covered and not in any real big hurry to extend coverage. This could all change during the next couple of days as we get closer to the USDA report.
- Last night in China May soybeans were up over $0.50, to almost $18.20. Corn was up over $0.15 cents trading at a new high of just over $8.60. I am not sure we will see this type of follow through momentum here at home today, but it is nice to see demand in their country not wavering on higher prices.
- Corn hasn't been able to generate much export business, but the domestic market is really starting to heat up and basis levels are starting to firm.
- Export sales numbers came in descent with beans at the higher end of expectations at 1.59 million metric tons (way below last weeks 2 million plus figure, but still good). Wheat was about right in line with expectations, if anything slightly higher than some were anticipating being reported at 600,000 metric tons. Corn came in on the low end just above 450,000 metric tons.
- There are reports now surfacing that the Russian winter wheat crop plantings are down by almost 10 million acres. In addition their wheat crop could now be 1.7 million metric tons below the last USDA estimate.
- The funds continue to their huge long positions. I heard they added almost 15,000 contracts yesterday to their long corn position, and seem to be quickly closing in on 500,000 contracts. On top of that they are now long about 215,000 soybean contracts, 80,000 in KC wheat, and another 15,000 in Chicago wheat.
What Lies Ahead For Corn, Beans & Wheat updated 11/5/10
Now that the US election is behind us and the results of the Fed meeting have been detailed, we need to shift our focus to next weeks events and longer-term market direction. The Fed’s plan to buy an additional $600 billion in long-term US treasuries to help speed up the economic recovery, was mostly uneventful and within expectations. This was considered to be at the low end, but still within street estimates. As we move forward in the grain markets I anticipate our next point of focus will obviously be Tuesdays USDA report. From there I am certain all eyes will quickly shift to the planted acreage battles that will ensue. The stage is being set to be a battle of epic proportions as we move into the Spring. With an estimated 9-10 million more acres of corn and beans needed to balance the books traders will quickly become nervous and look to build premium into the prices in anticipation of shortages. With Cotton & Wheat continuing to steal acres, who knows what the final outcome will be...You can do the math anyway you like, I just don't see it working out. Either corn or beans will be coming up on the short end of the stick. For argument sake go ahead and say we some how weasel 1 million acres out of the CRP program, assume 2 million acres less prevented plant, grab another 2.5 million acres from double crop, steal 500,000 acres from pasture land (how I am not sure, considering farmers are trying to expand pasture land in most areas) and another million acres from reduced HRS acres your total gain is still only 7 million acres, still short of the 10 million needed. Remember the additional acres from double crop and prevent plant acres will hinge on favorable weather conditions in the spring. If weather becomes an issue all bets are off, these markets will be off to the races. This is why I continue advising clients to build bullish type positions in the the Dec 2011 Corn and November 2011 soybean contracts.
My Projections For The USDA Corn Yield updated 11/5/10
Well, everyone else seems to be throwing their hat in the ring in regards to where the USDA corn yield estimates will end-up, so here goes my two cents. Keep in mind that unlike many of the other advisory services I have no direct ties or affiliations with any government agencies or groups that I am trying to influence. Therefore I shoot straight from the hip, and call it like I see it. If I am wrong I am willing to admit it and move on...I tend to hate listening to those in this industry that "ride-the-fence". Yes, I think the USDA is going to lower corn yields next Tuesday. By how much is the magic question. The USDA was at 155.8 in October, most of the big advisory services are doing their usual and estimating a cut of between 1-2 bushels trying to play it safe putting the numbers between 153.5 to 155. Most are looking for little or no changes in usage levels and a slight drop of maybe 50 million bushels in demand from the lack of recent exports. In any event we could still see corn's ending stocks balance fall below 775 million bushels. I think I am going to take it even one step further and predict we come in lower than the average guess somewhere above 150 but below 153.5. I know first hand that the USDA has already included over 90% of their test plot data in the October report and that they have been waiting on farmer surveys to use in this report. I had several clients that received the surveys just a few weeks back. Those harvesting the earliest would have to be the ones most likely to have their surveys completed and sent back in time to make this report. I realize they allocate it accordingly by state, but I believe many of those surveys might be returned on the low end as farmers in many areas are in the middle of federal crop insurance claims, etc... Not to mention that this years moisture level may have thrown another wrinkle in their original yield estimates. A crop this dry can amount to a substantial loss in overall yields. I also think Iowa and Illinois may be worse than many have been estimating. I have been wavering a bit as of late myself, but after assessing the recent market activity and data I am jumping off the fence...Let The Bulls Run! Look for a bullish report next Tuesday.
Winter Weather Could Be Extreme updated 11/5/10
As you know I rarely like to predict or comment about long range weather forecast. I just really have not had much luck in the past, and I think of it as more of a "crap-shoot" than anything else. Weather forecasters certainly have a tough job, unfortunately their success rate in long-term forecasting is somewhat questionable at best. There is one in the industry that you should certainly pay close attention to, and that is Evelyn Browning Garriss from The Browning Newsletter. In their latest report they are predicting this weather could bring along very extreme conditions. Basically they point out that there are three enormous weather patterns now surrounding North America. All three cause cold harsh winter weather and extreme conditions. I know, not what you wanted to hear. She explains in detail how the La Nina has taken the Pacific Ocean temperatures down sharply. From what I can gather if temps fall less than 1.8 degrees Fahrenheit below normal levels it is considerate a moderate La Nina. If temps fall more than the 1.8 degrees Fahrenheit it is considered extreme. Right now the temps in the central Pacific have fallen by more than 2.5 degrees and out off the coast of Peru they have fallen by more than 3.5 degrees. The crazier part is the eastern Pacific, off the coast of South America temperatures are still dropping. This combined with several additionally strong weather patterns that have developed could make this one of the most intense winters in a very long time. If weather truly becomes an issue prices will certainly jump through the roof. I will keep you updated in the daily report as I hear of more findings.
Will Soybeans Eventually Take A Back Seat To Corn & Wheat updated 11/5/10
As of right now beans are still setting the pace, and with the biodiesel tax credits being put into play they may continue to show additional strength. I am going to take a stance though and predict that Beans will soon start to fizzell and once again follow the Corn market. I think exports are eventually going to pick up significantly in both corn and wheat. Soybeans have and may continue to have for a few more sessions their day in the sun, but eventually I think Corn takes the lead. I believe China may be slowing down just a bit on their bean purchases. I am starting to hear that the export basis bids for cash corn are continuing to climb at the Gulf. Bids at the PNW have increased about 20 cents this week. From what I can see no one has stopped crushing or feeding corn at these price levels. I also think the global wheat crop may continue to struggle. To make the play I am going to be Buying (1) March Corn, Buying (1) March Wheat and Selling (1) March Soybean contract. To find out more specifics please follow our daily report.
Producer Trade Alerts updated 11/5
- I want to make certain that all of our producers who followed my recommendation to re-own corn on their earlier cash sales by purchasing the Dec $4.50 calls exit a portion of those trades prior to the USDA report next Tuesday . We have banked huge profits on this trade and need to reward the market. For those who have rolled into July consider selling the $8.00 calls up above to lock in a risk free trade. This should now give you $2 per bushel of additional upside potential with absolutely no risk to the downside.
- For those who elected to follow our Long July - Short November soybean hedges you should also be exiting this position now in its entirety. We have done well by picking up almost $0.50 per unit.
- Wheat producers should continue to hold their deep in the money July $6.50 calls. We may see some set-backs but I think there is more room to the upside.
- I have upped my 2010 cash sales to 65% sold in corn, 75% sold in soybeans and 100% sold in wheat with select re-ownership strategies in place. In 2011 I have forward contracted with HTA's 15% of our corn, and 20% of our soybean sales. We are about 45-50% sold in wheat at this time. We have various hedge strategies in place for coverage on about 40% of our corn and bean crop, and 30% of our remaining wheat sales.
*For specific strategies feel free to call the office and we can help you design something that will work for your operation.