EHedger Afternoon Grain Commentary 10/3/12
Oct 03, 2012
The CBOT grains closed near unchanged after a day of wide swings. November soybeans came down to post new lows for the move at $15.04 before settling 1 ¼ cents higher at $15.31 ¾. December corn closed 1 ½ cents lower at $7.56 ¾. December wheat closed 1 ½ cents higher at $8.73.
FC Stone’s production estimates were surprisingly higher than expected yesterday afternoon which contributed to the overnight weakness. As soybeans surpassed some major technical goals we started to see more buying interest come into the market. For now the $15.00 level has held but if tested again there is a major gap in November soybeans down at $14.78 which would be the next downside target.
The fact that we have the export sales report tomorrow may have been a reasonable cause for the longs to step back into the market. Our export sales pace has been very aggressive most notably to China. Tomorrow they are expecting soybean sales to be between 700,000 – 900,000 MTs. The USDA announced the sale of 21,000 MTs of soyoil to China this morning.
The EIA report was a little bearish for corn showing a production decline of 23,000 bbl/day to 785,000. The ethanol stocks were also down by 0.5 and are now at 18.8 mln bbl. Ethanol’s profit margin is estimated to be negative (Iowa Prices) for the 9th week in row wit this week at $0.601 per bushel. Corn had a hard time sustaining its intra-day strength as crude oil fell by over $4 a barrel. For tomorrow the market is estimating weekly corn export sales to be between 200,000 – 400,000 MTs.
MARKET OUTLOOK: The expectation for higher soybean acres, higher yield, and typical harvest pressure continues to weigh on prices. Yield reports seem to be coming in better than expected but overall have been hard to quantify. What the USDA writes down for their October 11th estimate is any ones guess. But let’s assume that the USDA does increase available bushels by 200 million (increased old crop stocks, increased acres, increased national average yield). Over the past 5 months we have cut 616 million bushels off the original 2012/13 demand estimates. With the buying pace China has set we could easily replace 1/3rd of that lost demand with those extra 200 million bushels. Though I want to stay hedged, I find it hard to believe that the price of soybeans can continue falling at its current rate unless bean yields are substantially higher than the current expectations. Soybeans are now 41% harvested and the good-excellent rating was left unchanged from last week.
Corn has a really bullish supply story, but is the demand going to pick up? Last week the USDA shocked the market with an old crop corn carryout less than a billion bushels. In response we had a limit up settlement on Friday and an overall supportive tone this week. Corn is now 54% harvested and the good-excellent crop rating went up 1% to 25%. Now that we are past the 50% harvested mark this may be a trigger point for market participants to start looking for a harvest low. We just need to start seeing export demand pick up for any sustainable rallies. Last week we had a dismal 400 MTs… total! We need to watch the Thursday sales reports for direction as well as the next WASDE report which will be released on October 11th.
Soybean Technicals: The November contract finally reached its 50% retracement level today before finding heavy market bids to drive the price back to positive territory. As I mentioned previously, the next major support could be found at the 4th of July gap at $14.78. Next upside resistance can be found at $15.71 ¼ and then at $16.12 ½ basis November.
Corn Technicals: Corn was unable to make it down to the critical 50% retracement level, gap fill, or 100 day moving average before its late rally last week. We now have the MACD and exponential oscillator turning higher which may be an indicator of another rally to come.
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