EHedger Afternoon Grain Commentary 9/25/12
Sep 25, 2012
It was another choppy day at the CBOT but prices settled near their unchanged levels. December corn closed at $7.43 ¾ (-1), November Soybeans at $16.11 ½ (+1 ½), and December wheat at $8.86 ½ (-5 ½).
The market is having a hard time sustaining any meaningful rebounds as it continues its September slump. We do have a couple of major reports coming up that could be game-changers. On Friday at 7:30am they will release the September Quarterly Stocks Report as well as the Small Grains Summary. At 2:00pm the Hogs and Pigs report will be released. The corn stocks number will be extremely difficult to guess even if the commercials do an excellent job reporting what’s "old" and "new". In the past few years we have seen major surprises on this report due to this very problem (typically bearish). Can we expect a year like this to be any better when many areas have started harvest weeks ahead of schedule? Nonetheless we still have our estimates released in the charts below:
Wheat Production Estimates (Report Friday)
Quarterly Stocks Report (Report Friday)
The market is still in a technical selloff which may be fueled by typical harvest pressure. The Crop Progress Report shows that we are on a record harvest pace for both corn and soybeans. What is most surprising is the pace some of the northern states have set for soybeans. Minnesota is 45% harvested compared to 5% on average at this time! North Dakota – 56% harvested compared to 4% on average!
A rising soy crop rating has also played a part in the soybean sell-off. We have started to see some better-than-expected soybean yields come in but it is still too early to tell if this trend will substantially improve the current USDA national average yield estimate. In our opinion even if you added 100-150 million bushels to this year’s production we could easily see this picked off in additional export demand. This would still leave us with an extremely tight carryout and a high level of sensitivity to any unfavorable weather forecasts in South America this winter. One major technical level to watch out for is $15.81 (the 38.2% retracement).
Chart: November Soybeans
Fund Activity: Friday’s Commitment of Traders reports that from Wednesday the 12th through Tuesday the 26th the "managed money" was reducing their net long positions in corn, soybeans, and wheat. They decreased their longs by 14,870 contracts while increasing their short positions by 11,434 (they still hold a net long position of 270,162 of corn using futures and options). The "managed money" also reduced their net long soybean position by dropping 15,185 longs and increasing 3,760 shorts (they still hold a net long position of 209,875 of soybeans using futures and options).
These are still very large positions which begs the question – when and will they liquidate? We are in harvest but haven’t got a clear picture of how good or bad the production is compared to market expectations. In fact it may not be until the January stocks number until the market is truly convinced one way or the other about crop size. This latest break may have been from typical early harvest pressure during an overcooked market. That doesn’t mean I would get out of hedges. Another drop before/during the October timeframe will be the worst case scenario for the crop insurance payouts. There is a major technical gap for corn down at $6.76 and export sales have been extremely poor for corn as of late. For now we want to remain with sustainable hedges as we progress through harvest. To sign up for a free EHedger trial please click on the link below.
Thanks and have a great week!
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