E Hedger Closing Grain Commentary 11/30/09
Nov 30, 2009
Corn, soybeans and wheat all closed higher. Wheat was the clear leader today as it held on to double-digit gains for most of the day. Today was the last trading day of the month and this attracted some additional fund buying. The markets should continue to be choppy as we head through the Holiday season. Reallocation of money from one commodity to the next combined with thin holiday markets should continue to cause sharp prices swings.
Soybeans closed around 8-cents higher. End of the month positioning caused soybeans to trade on both sides of unchanged. The EU approved the 3rd GMO corn variety under question for import. This was as expected, and with South American soybeans now at a discount to U.S., this should have little impact on U.S. exports to Europe at current prices. The biggest factor for the soybean market remains the outside markets. Investment money continues to enter all commodities including soybeans. Fundamentally, soybean prices look to be overvalued. Good South American weather and more available U.S. acres this spring should help global stock rise sharply in the coming 9 months. Imported soybeans into China are around the same price as their domestic soybeans. This could also start to limit Chinese imports in the coming months. However, the trend is up right now. Most bears are tired of “fighting” this market and until the market turns down and the investment buying slows down, few speculators will be willing to sell the market. I still believe this current soybean rally is giving the American producer a great selling opportunity. We are currently 30% sold for the 2010 crop and our next 10% goal is at $10.59 November futures (7-cents away). I certainly don’t know when this buying will stop, but we will continue to use this buying to our advantage.
Corn closed around 5-cents higher. Uncertainty over the final U.S. crop size, good ethanol margins, and strong investment buying continue to keep corn prices supported. Poor export demand, dwindling feeding margins and more available acres in the spring are weighing on prices. The EPA is also set to announce whether or not they will increase blending rates for U.S. ethanol. We should hear something this week. Most feel the EPA will not increase the blend rate right to 15% at this time. Some feel that they will increase the rate to 12% and some feel they will simply push back their decision. As ethanol is the strongest demand component for corn at this time, the EPA decision could be crucial to corn prices at these levels. Again, I do not know when this buying will stop, but with current fundamentals $4.50 corn looks like a good sale.
Wheat closed sharply higher. The rally in wheat prices looks 100% like investment buying. Export demand has really slowed after the current rally. Global prices remain sharply discounted to U.S. prices and this should eventually weigh on prices. Without the CFTC strictly enforcing changes on the wheat contract, investment buying is willing to continue their purchases of SRW wheat. Although SRW wheat could prove to be interesting next year due to the sharp draw down in acres, this could be more of a cash game than a futures one. SRW futures are now at a premium to the other classes as a reflection in the loss of SRW acres. The problem is that the other classes of wheat can be delivered against the SRW contract for a PREMIUM. So, even if there is an eventual “shortage” of SRW next year, this will likely result in a very strong basis rather than a sharp premium of SRW futures over the other classes. Unlike the last few years, producers could be better off hedging in the futures and holding on to SRW cash. Please call if you have any questions.
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