EHedger Afternoon Grain Commentary 3-7-2012
Mar 07, 2012
It was a weak day at the Chicago Board of Trade with wheat and corn leading the way lower. May corn finished down 15 ¼ cents at $6.38 ¾, May beans down 8 ½ cents at $13.26 ¾, and May wheat down 18 ½ cents at $6.39 ¼.
The market seems to be in a corrective pattern as we head into the report on Friday. We had ethanol data released this morning which showed a slight uptick in production but another increase to the already record ethanol stocks as well. Old crop soybeans have rallied $1.23 so far this year while corn is down 2 ¾ cents! Corn was way overpriced to beans but after the market action these past couple of months we are finally back to normal levels especially in the new crop corn-bean ratios. We see this as a good opportunity for selling soybeans again. The fact that most of this rally in the beans has been attributed to major South American production cut estimates before we get the confirmation may pave the way for surprises in the next couple of USDA reports. We also want to reiterate that we are running well behind schedule for the soybean export sales pace that the USDA has set.
So who is buying beans? If you look at the Commitment of Traders data, we see that the "managed money" was net long about 33,020 contracts of soybeans on January 3rd. Currently they are sitting with a net long position of 117,678 contracts which is an 84,658 net contract increase in less than 2 months! We don’t see the old crop bean supply as a big problem at this time and think that the market will have to see a major increase in demand to get old crop supply down to the carryout levels that many people are suggesting.
May wheat dropped back below the price of May corn during the day session. This is one more fundamental attribute that could force more downside pressure on old crop corn as feeding wheat comes back to making financial sense again. March corn is still trading at a premium to May corn and May-Dec corn spreads are still way overpriced in my opinion. We look for the USDA to shed some more light on the supply situation. I would guess that the most likely place for surprises on the USDA Supply and Demand report will be in old crop soybean carryout for US and World. Currently the market is estimating old crop soybean carryout at 260 million and old crop corn carryout at 785 million. Please contact EHedger if you would like a trial of our marketing services. You can also sign up by clicking on the link below. Enjoy the rest of the week!
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