GrainTV – March 29th, 2012

Brock and Cody discuss this week’s export sales report and what producers should be looking for our of tomorrow’s USDA Planting Intentions report. Tune in for the full report!

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THERE IS A SUBSTANTIAL RISK OF LOSS IN TRADING FUTURES AND OPTIONS. FUTURES TRADING IS NOT APPROPRIATE FOR ALL INVESTORS. PLEASE READ OUR RISK DISCLOSURE.

Cash Commentary – March 23rd, 2012

There has been a lot of talk about planters rolling early to try to capture the late-summer premium for first-half September delivery. The attraction of a strong September basis combined with a tight supply of corn has at least a few producers willing to roll the dice and try to cash in on an early delivery. The national basis average for September delivery has improved 28 cents year over year, increasing from -52 at this time last year to -24 today. Considering this basis improvement, the real question is whether this reward is strong enough to warrant the additional risks involved with planting early?

This year’s corn stocks are even tighter than 2011 and according to the January 12th grain stocks report farmers are holding a higher percent of it on farm. As a result, we have observed abnormally strong basis throughout the spot and forward curve. The national basis average for spot delivery compared to the July futures has rocketed to the highest level that we have seen in the last five years. Considering the entire basis curve has moved up, comparing September basis year over year will not give us an adequate understanding of the relative incentive to plant early corn.

To understand the true cash incentive to plant early corn, we subtracted the average cash price for September delivery from the average cash price for October delivery. We found that the premium this year to sell in September instead of October is 38 cents, an increase of a little over two cents from last year. We are also observing a 14% increase in the number of markets posting a September bid. Though the premium has not improved much from 2011, the premiums observed in the last two years are well over the two cent premium in 2010, the half a cent premium in 2009 and the 15 cent premium in 2008. Considering that the last year producers found it difficult to get into the fields early enough to cash in on a September delivery due to the unseasonably wet spring, this year’s cooperative weather might bring out the gambling side of a few more producers.

The real question is whether or not 38 cents is compensation enough to take on the significant risks of planting early. The possibility of a normal to late freeze would do significant damage and considering that this year’s acreage forecasts have been around 94-95.5 million acres, producers may have a hard time getting their hands on seed if the early planting attempt fails. The other risk involved with planting early is the ability to lock in the premium. September forward contracts could bring more risk especially if the producer needs to re-seed. Finding the grain in September to fulfill a contract may prove to be quite difficult. If the producer fails to lock in the premium early when uncertainty around grain origination during September is high, they might find the premium quickly evaporating like it did last August.

Markets Pull Back from Recent Highs

The equity and commodity markets fell from lofty levels achieved over the last several weeks. The Dow hit multi-year highs last week only to fall 186.41 points this week to settle at 13,046.14 today. Oil has lost $1.75 a barrel to close at $105.43 on Thursday. Gold is down again this week declining another $16.40 an ounce to finish trade at $1,642.50. The dollar index continues to hover around the 80 level, but is down slightly this week. The agricultural commodities fell from recent multi-month highs.

The corn market is experiencing profit taking after reaching multi-month highs late last week. The grain is down 28 ½ cents on the May contract to settle at $6.44 ½ Thursday. Weighing on the market is continued warmer than normal weather for the majority of the Midwest. Planting is starting well ahead of schedule leading many traders and producers to believe more acres will go to corn rather than soybeans. Export sales continue to beat expectations and were reported as 862,100 MT, which is up 3.1% from last week.

Soybeans have benefited from continued production reductions in South America although the oilseed has fallen 24 ½ cents on the May contract this week. After settling today at $13.49 ½, the market is looking poised for a sharp decline back to support near $12.90. Trend following funds are net long roughly 150,000 contracts, which is the most since the highs of late August. Shortly thereafter a sharp sell off occurred. Export sales disappointed this week at 356,700 MT, which is down 41.5% from last week.

The wheat market has fallen into a trend of following the corn market recently as the two grains compete for feed use. On the week, wheat is down 25 ¾ cents to close at $6.46 ¼ on the CBOT May contract. Our domestic winter wheat crop is in very good condition with yield prospects at a high level. Internationally, competition is coming from Australia, the Black Sea area, and India most recently. The crop in France has had severe frost damage on about 700,000 hectares, which may be replanted. Export sales beat expectations this week and were reported as 539,300 MT, which is up 78.3% from last week.

This week has been a reverse in the recent steady climb of equities and commodities. Most markets have pulled back after achieving levels not seen in months, if not years. Focus in the commodities sector is on the upcoming Planting Intentions and Quarterly Grain Stocks reports set to be published on March 30th.

Soybeans Make Last Ditch Effort to Buy Acres

Once again, the new crop soybean/new crop corn ratio has reached levels not seen since before last year’s planting intentions report.  It is probably too late for soybeans to buy many acres, but they do seem to be making a last ditch effort to capture some much needed acreage.  If there are any planting delays or any replanting to be done, soybeans would undoubtedly grab most of these acres.

Take a look at the chart below from our Firetip trading software.  As you can see, the last time we saw the ratio this high was on March 1, 2011 when it hit 2.373 soybeans/corn.  This ratio tumbled throughout the growing season of 2011 ultimately hitting a low of 1.991 on November 11, 2011.  Since then, the ratio has rallied sharply higher as soybeans were desperately trying to ensure enough acres will be planted this year.  Today, the ratio hit a 13 month high at 2.403.  A poll of analysts shows that the average guess for corn acreage in Friday’s report will be around 94.72 million acres and beans around 75.39 million acres.

If you would like to follow this price ratio, another contract, or a spread chart take a free 10-day trial below.

NC Bean Corn ratio

THERE IS A SIGNIFICANT RISK OF LOSS IN TRADING FUTURES AND OPTIONS. FUTURES TRADING IS NOT APPROPRIATE FOR ALL INVESTORS. PLEASE READ OUR RISK DISCLOSURE.

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Cash Market Points To More Soybean Acres Than Analysts Expect

Continuing our look at new crop pricing in preparation for the planting intentions report released at the end of the month, we analyze the per acre revenue potential for corn and soybeans. In our study we compared the average county yields throughout the Midwest and multiplied them by the county average new crop cash price. We compared the revenue potential for corn and soybeans observed during March 2011 to the revenue potential we are currently observing today.  In other words, would a farmer today have more incentive to plant corn or soybeans than they did this same time last year?

Speaking strictly in terms of revenue potential, the results show that throughout the U.S., corn has lost an average of $31 dollars an acre this year compared to 2011, while soybeans have given up an average of $12 per acre.

The latest Informa planting acreage forecast called for 95.5 million acres going to corn and 75 million acres going to soybeans. This a sharply higher corn acreage number from last year, with Informa expecting farmers to seed 3.6 million more acres this year as compared to last year. For soybeans, they expect acreage to stay roughly the same.

However, based on current economic incentives reflected in new-crop futures and new-crop basis quotes across the country, it would seem the farmer’s economic incentive (in terms of revenue potential) don’t support the forecast for such a disproportionate increase in corn acres compared to soybeans. Though both corn and soybean revenue per acre has declined this year compared to last, soybeans have shown relative strength compared to corn. Soybean revenue has become $18 per acre more competitive to corn compared to our observations in 2011. Specifically, we see areas in IN, IL and IA showing improvements in soybean competitiveness by over $35 per acre, while the western Corn Belt continues to favor corn. While we may add corn acres in the western Corn Belt, the heart of the corn producing region may see less corn acres than the market currently anticipates due to the competitiveness of new crop soybean bids in their region.

This analysis does not factor in the overall change in corn and soybean production costs. However, fertilizer prices have shot up in recent months, which have the added impact of limiting corn plantings as compared to beans. With many farmers postponing their fertilizer purchases betting that prices will decline, the potential for fertilizer shortages may also limit the large corn acreage numbers some analysts expect.

From a revenue perspective our analysis does not support the magnitude of corn acreage forecasted for 2012 while soybean acreage remains unchanged. More importantly, the best yielding areas are currently showing the most revenue incentive to plant soybeans instead of corn. Swapping quality acres for quantity raises even more questions about the likelihood of trend line yield.

Ides of March Has Luck of the Irish with the Grains

The Ides of March are here as the commodity and equity markets continue to rally as if they have the luck of the Irish.  The Dow has reached levels not seen in nearly four years and closed at 13,252.76 today which is up 330.74 points this week.  Oil has fallen $2.12 a barrel to $105.30 as of this writing.  Gold has lost $53.60 an ounce to settle at $1,658.80 as investors move to more risky assets.  The dollar index is up slightly which has not prevented the grains from moving sharply higher this week.

Corn hit levels not seen since early January and is up 24 cents to close at $6.69 today.  This market has been pulled higher by the surging soybean market and by forecasts for tight ending stocks later in the marketing year.  To ensure enough acres are planted with corn the market is trying to keep pace with soybeans.  Ethanol demand for the grain is beginning to show signs of slowing as profit margins are tight.  Export sales were at the high end of expectations and were reported as 836,400 MT, which is up 88% from last week.

Soybeans have been the star in the agricultural commodity sector for the last several weeks.  The oilseed is up another 31 ½ cents to settle at $13.69 today, which is a six-month high.  Continued production concerns in South America have pushed this market to these heights as export prospects for later in the year are raised domestically.  Export sales this week were reported as 609,700 MT, which is down 40% from last week.

Wheat was the leader to the upside Thursday and is up 21 ¾ cents on the week to settle at $6.64 ¾ on the CBOT May contract.  The winter wheat crop is off to a good and early start which has added pressure recently.  Concerns about a late freeze on the early emerged crop propelled the market higher today.  Export sales have been better recently and were reported as 302,400 MT, which is down 32.3% from the previous week.

The Ides of March has the markets feeling as lucky as the Irish.  For commodities, prices have been reached that we have not seen in several months.  For equities, it’s been several years.  Demand and South American production will continue to drive the grain markets as we head towards the Quarterly Grain Stocks and Planting Intentions reports on March 30th.

THERE IS A RISK OF LOSS IN TRADING FUTURES AND OPTIONS. FUTURES TRADING IS NOT APPROPRIATE FOR ALL INVESTORS. PLEASE READ OUR RISK DISCLOSURE.

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Could Corn Spreads Explode This Summer?

Over the last several weeks many traders and producers have been talking about the spreads between front month and deferred contracts.  A couple issues are surrounding the July-December corn spread in particular.  First, ending stocks appear as though they will be tight once again as we head towards the end of the marketing year and summer.  This will continue to add support to the front month contracts, especially the July and September contracts, when the stocks could be the tightest.  Second, the deferred contracts will be pressured lower by the prospects of a historically large acreage being planted for corn.  If planting gets completed without a hitch and the weather remains favorable, we should see record production sending the market much lower than we stand today.  It seems as though the July-December corn spread will become even larger through summer.

Take a look at the chart from our trading software Firetip.  This chart depicts the July-December corn spread dating back to this time last year.  Exactly one year ago, the spread was sitting at a 63 1/4 cent premium to the July contract.  We did head lower until pipeline supplies became a concern in late summer.  This spread rallied to a high on August 30th achieving a 126 3/4 cent premium for the July contract.  Currently, the spread is sitting at a 92 3/4 cent premium to July after breaking through resistance in the 80 cent area.  If we see the 94 million acres or more planted and quarterly stocks revised lower this spread will likely explode higher.  Considering that the spread is already nearly 30 cents higher than a year ago shows that the market is already concerned about old crop supplies.  If you would like to follow this spread or chart other contracts, sign up for a free demo below!

July Dec corn spread 2

THERE IS A RISK OF LOSS IN TRADING FUTURES AND OPTIONS. FUTURES TRADING IS NOT APPROPRIATE FOR ALL INVESTORS. PLEASE READ OUR RISK DISCLOSURE.

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GrainTV – March 13th, 2012

At the time of this post we see May soybeans trading above 1350, up 17 cents to 1351 1/2. Export sales of corn to unknown destinations were reported this morning by FAS, but front month corn is taking the news in stride down 1 1/4. This may be a situation of buy the rumor sell the fact after trade chatters of China purchasing up to 800,000 MT of old crop corn was in the market late last week. This morning Logan and Brock discuss yesterday’s crop progress report and look at some soybean technicals. Tune in for the full report!

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THERE IS A RISK OF LOSS IN TRADING FUTURES AND OPTIONS. FUTURES TRADING IS NOT APPROPRIATE FOR ALL INVESTORS.

PLEASE READ OUR RISK DISCLOSURE.

Choppy Trade Ahead of USDA Reports

The equity and commodity markets have settled into a consolidation period after achieving recent highs in the last few weeks.  The Dow is down 69.63 as of the close Thursday to finish at 12,907.94.  Oil has chopped around multi-month highs and is up 13 cents a barrel to $106.72 at the time of this writing.  Gold fell $12.50 an ounce to settle at $1,701 today and the dollar index is down modestly.  The agricultural commodities are bracing for the reports due out Friday.

Corn settled at a two-week low Thursday down 19 ½ cents for the week at $6.35 ½.  The USDA releases their updated Crop Production and Supply/Demand reports Friday, but ahead of the reports traders have been position evening and booking profits.  Trade has been choppy and two-sided for most of the week.  Demand has become a concern at these price levels and China announced they will curtail their corn imports.  Export sales were reported as 445,700 MT, which is down 35.4% from last week.

Soybeans were in the spotlight again this week and were up 5 ½ cents to settle at $13.38 ½ today.  Continued production concerns in South America have propelled this market higher by more than $1.20 in the last two months.  More revisions lower are expected in Friday’s reports.  Export sales continue to beat expectations and were reported as 1,015,200 MT, which is up 84.9% from last week.

Wheat continues to underperform in relation to corn and soybeans.  The grain was down another 39 ¾ cents to finish Thursday at $6.34 ¾ on the CBOT May contract.  A large world supply and a great start to the winter wheat crop domestically have weighed on the market.  Wheat is looking very weak both technically and fundamentally without any bullish news to provide support.  Export sales continue to be routine at 446,700 MT this week, which is up 7.9% from last week.

Consolidation is the name of the game for the equity and commodity markets this week.  Tomorrow should provide some fundamental news to give the agricultural commodities some direction as the USDA will release its monthly Crop Production and Supply/Demand reports.  After these reports, the next fundamental driver will come on March 30th when the Planting Intentions report and Quarterly Grain Stocks will be published.

Cash Commentary – March 8th, 2012

As we inch closer to the planting intentions report at the end of the month, we direct our attention to new crop basis levels. Just within the last week new crop corn basis gained half a cent while soybean basis increased a penny. Throughout the year we have seen both corn and soybean new crop basis continue to make steady improvements. Since the first of the year, new crop corn basis has increased five cents and soybeans have increased nine cents.

Comparing this year’s new crop basis levels to last year’s, we are seeing a substantial difference. Taking an average of current new crop basis levels seen this month and comparing them to new crop basis levels from the same time last year, we see corn at an average of 16 cents stronger than last year and soybeans around 9 cents higher on average. Although new crop basis is rising to seasonally uncharacteristic levels, historical analysis would suggest that basis has the capacity to continue improving at least for the foreseeable future.

New crop soybeans seem to be gathering the most strength from river terminals as well as soybean crushing facilities that have been consistently strengthening their basis. Strong corn basis is more evenly distributed throughout the country and looks especially strong in the fringe areas where additional corn may be planted this season. We do expect new crop basis to maintain its strength going into planting and pollination, but we would warn producers that July will mark an important pivot point to this trend. If 94 million acres are planted to corn this year and weather is cooperative, new crop basis could face strong headwinds in the second half of the growing season.