Will the Chinese Rumors Be Confirmed?
Apr 20, 2012
Corn traders continue to try and figure out just how much corn, especially "old crop" US supplies, China has purchased as of late. We have all heard the rumors of Sino grain snooping around in the market for huge US quantitates, must talking about 500k-700k... but when will we see the confirmation? Certainly not in yesterday's USDA export sales data. One source I have over in China went as far as to say he believes China recently bought two million tons US corn, 0.5 by Cofco and 1.5 by SinoGrain. On the flip side several seasoned traders are questioning WHY China would be in buying large quantities of old crop US corn in the first place with new crop supplies just 12-15 weeks away and some $0.75 cents cheaper. Another big concern is that the purchases made recently were "optional origin," and with Argentine corn trading at some $15-$20 per ton DISCOUNT to US corn, it would only make sense that a large portion of the purchases could would swing to Argentina and NOT 100% going to the US. In any regards I have to believe something has been bought, just too much "buzz" in the market to be nothing at all. Bottom-line I wouldn't be short down here at the low end of the range. Yes, we may be in the long-term process of making lower highs and lower lows, but huge Chinese purchases could certainly change the balance sheets.
The basis continues to remain strong. In fact we are hearing many reports from producers who are seeing the ethanol processors, in an attempt to draw corn away from export terminals, bid up for supplies. Some areas out East are reported to be bidding $0.40 to $0.45 cents over for old crop bushels. The basis all over the country is being helped in fact by the early plantings which are keeping the producers in the fields and not selling or hauling grain. I continue to urge producers to make the sale and take advantage of the strength in the basis then look for ways you can re-own the board with some limited risk type plays. If you do not want to re-own the board then I would continue to wait for higher prices.
Chinese "drought" news is also grabbing the headlines. Yesterday there was all kinds of talk circulating about "Heilongjang," a major bean producing area in the far northeast of China experiencing some extremely dry conditions. The problem is a couple of reliable weather services here at home are scratching their head because the data shows precipitation in March was actually well above average. Some even indicating nearby areas are running at a slight surplus for the past 90 days. I would be apprehensive buying into a bullish type Chinese weather story at this juncture.
South American production estimates seemed to be gaining some recent attention as well. From what we heard, the Argentine government lowered their corn estimate to 20.3 MMT from 21.7. The USDA currently has their Argentine corn crop estimated at 21.5MMT, so this confirms thoughts that the USDA is too high. They also lowered their soybeans estimates from 44MMT down to 42.9MMT. The Buenos Aires Exchange chose to leave their Argentine soy production numbers unchanged at 44MMT, and also left their corn production numbers unchanged at 20.8MMT, this is still lower than the current USDA estimates. While we are talking about production I should also note that Oil World earlier this week cut their EU rapeseed estimates to just 18.5MMT which is a new five-year low.
Wheat is starting to attract a little more of my attention as of late, and as I mentioned the past few days there are some global developments that are making me think wheat may soon become more bullish than corn. More talk of global production type setbacks and increasing demand may eventually be a formula for higher prices. I am not getting overly excited, but I do see some potential light at the end of the tunnel. Therefore I will continue to patiently wait for higher prices before marketing any additional bushels.
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather. I know as a producer, you may have questions as to how this pertains to your farm and your marketing. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow." Just click here -