EHedger Afternoon Grain Commentary 10/25/12
Oct 25, 2012
Heavy bearspreading dominated the grain markets today with corn leading the way lower. December corn closed 12 ½ cents lower at $7.42, November soybeans down 6 ½ cents at $15.64, and December wheat down 11 ¼ cents at $8.72 ¾.
Export sales fell short of expectations for corn and soybeans but were above the highest guess for wheat. Even so wheat was unable to hold its early support and eventually followed corn lower on the day.
Estimated Range Actual
Corn: 150,000 – 375,000 MTs 142,300 MTs
Soybeans: 600,000 – 900,000 MTs 522,200 MTs
Wheat: 250,000 – 450,000 MTs 572,000 MTs
At 8:00am the USDA announced another sale of 120,000 MTs of US soybeans to unknown. This is on top of the 105,000 they announced yesterday.
Even though soybean sales were below expectations they were still well above the average per week needed to meet the current USDA demand estimate of 1.265 billion bushels. Sales equated to 19.2 million bushels and we only need to average 7.5. This brings us to 72.7% percent contracted for the year (new record). When we are only looking at 130 million bushels in total carryout (4.5% of total use) we really can’t afford to raise exports. The market is counting on a decent crop in South America and should be very price sensitive if we run into any weather issues along the way. So far we have seen dryness in Northern Brazil and slightly delayed plantings in Argentina due to heavy rains. They have not been large enough issues to expect a significant change in production.
While soybean demand remains strong corn demand is looking poor. This doesn’t mean I am necessarily bearish old crop corn. Our 2012 production is only estimated at 10.706 billion and the market is merely doing its job by holding back demand to meet its limited supply. I believe that we could stay range-bound through the end of the year unless we see a sharp rally in feed margins or another sharp rally in energy prices. We do have to keep in mind that it is election year and we are facing the fiscal cliff. Ultimately in the last election year we were struck with a massive selloff in the outside markets which also brought December 2008 corn down below $3 a bushel. Obviously this is an extreme example but it is worth noting that we can be highly affected by economic circumstances.
As of Wednesday October 25th the average price of December corn in Oct has been $7.51 ½. The average price of November soybeans has been $15.38 ½. We are through 19 of the 23 business days which decide the harvest price for insurance, which basically means we can’t significantly change this price from here. With the fall crop insurance price set and your yields basically known it is time to re-evaluate hedge levels to see how to protect downside risk going into the winter. Please contact an EHedger broker to see how we can help you develop a strategy to finish out 2012 and look forward to the 2013 crop year. Phone: 1-(866) HEDGER-1. Have a great weekend!
Chart: November Soybeans
Chart: December Corn
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