Walsh Commercial Hedging 11/28/12
Nov 28, 2012
The complex settled mixed after taking a breather after yesterday’s sharp rally even though the outside markets were highly volatile. The wheat complex continues to be leader of the pack with the Kansas City wheat July contract finishing higher for the 7th straight session and posting a new contract high of 944 ¼ before settling up 4 ¼ cents at 942 ½. The trade is more focused on the terrible weather conditions in the western Plains than the sluggish demand for wheat exports. The weather forecast shows no significant precipitation is expected in the next 2 weeks and temperatures are expected to be above normal in the western Plaines which will keep some wheat from entering dormancy. The SRW wheat conditions in the east remain mostly favorable and this shows in the spread between KC and Chicago wheat in the last month. Back on October 29th the spread between the July Kansas City HRW wheat contract vs. the July Chicago SRW wheat contract was 39 ¼ cents. After today’s close the spread has widened to 55 cents. For tomorrow’s export sales report the trade is looking for wheat sales to come in between 300-400,000 MT. The corn complex settled mixed with the deferred contracts finishing in the green while the March contract finished only down a penny at $7.63. Traders continue to roll their December contracts with “First Notice” day for Dec. contracts this Friday. This morning’s ethanol stocks report was considered mixed against trade expectations. Ethanol production averaged 803,000 barrels/day for the week ending November 23rd, down from 811,000 last week and down almost 14% vs. last year. Total ethanol production for the week was 5.62 million barrels. Corn used in last week’s production was estimated at 84.3 million bushels vs. 85.16 last week. This crop year’s cumulative corn used for ethanol production for this crop year is 1.02 billion bushels. Corn use needs to average 86.64 million bushels per week to meet this crop year’s USDA estimate of 4.5 billion bushels. For tomorrow’s export sales report the trade is looking for corn sales to come in between 400-600,000 MT. The soy complex didn’t see any follow thru buying after yesterday’s sharp rally even though the USDA reported that US exporters sold 290,000 tonnes of soybeans to China for the current marketing year. Even though Chinese crush margins are reportedly improving thus putting China back in the market for US soybeans, the overall weather outlook in South America remains mostly favorable even though southern Brazil is dry which is keeping a lid on any significant rallies in soybeans. Even if export demand stays stellar, it’s my opinion the trade is more focused on the weather situation in South America in order to replenish the world’s pipeline of soybeans. However, if Brazil does have a bumper crop putting it ahead of the US in soy production for the 1st time ever it will have to deal with the logistical nightmare of getting those beans out. Don’t forget just a couple of weeks ago port delays and bottlenecks caused Japan to cancel an order of Brazilian corn and instead bought from the US. And this happened when Brazil doesn’t even have any soy to ship!
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