Beans Sharply Higher Overnight

Soybean futures shot higher overnight breaking out of its narrow trading range of recent sessions. Nearby March futures eclipsed the $14.70 mark, adding 20 cents in the overnight session. Corn was pulled higher by 7 cents while wheat managed a 4-cent gain.

South American weather continues to underpin the soybean market with rains in Brazil delaying harvest, while dry weather forecasts in Argentina put the developing bean crop still at risk. Furthermore, the record-large Brazilian crop may find trouble getting to global users anytime soon. As many as 126 vessels were scheduled to load 6.2 million metric tons of soybeans and corn as of yesterday. That compares with 72 ships carrying 2.8 million tons a year earlier and 47 vessels with 1.5 million tons in 2011. The wait at Santos, the country’s biggest port, may be as many as 35 days, while the wait in Paranagua may be 15 days.

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In corn, news continued to point to cut backs in ethanol as a Texas plant halted production on Tuesday, while Abengoa, Poet and Valero have announced 6 plants idling in the past week. EIA will announce their weekly ethanol production number today, which is likely to show continued weakening in the weekly grind.

For wheat, the market has been inching higher in recent sessions but as of yet there has been little reaction to the poor wheat conditions in the Plains. Kansas showed only 20% of its wheat crop in good to excellent condition in January, while Oklahoma is a dismal 5%. Based on these conditions and the historical relationship between January conditions and yields, we would expect Oklahoma to have an 18 bushel yield vs last year of 36, while Kansas would be at 31 vs last year of 42. If realized, we think this makes it difficult to achieve normal US yields of 46 for wheat and would likely put new-crop 2013/14 ending stocks in the low 600 MB range, off from 716 MB currently forecasted by USDA for the 2012/13 crop year.

Grains Looking for Direction

Trading was quiet overnight in the grain markets as prices continued to stay in a tight range. Corn, soybeans and wheat were all up about a penny a bushel on limited news.

Reports from USDA’s state office in Oklahoma and Kansas on Monday show the depths of the poor wheat crop. Kansas showed only 20% of the crop in good to excellent condition, versus last year’s reading of 49%, while Oklahoma had a mere 5% of the crop in good condition (none in the excellent category). With Kansas and Oklahoma between them typically responsible for about 20% of US wheat production, the drought – which has a firm grip on the likes of Colorado and Nebraska too – has raised fears for the 2013 harvest, particularly of the hard red winter wheat prevalent in the worst-affected states. On the export front, weekly export inspections came in at 22 mb on par with last week’s number. India announced there are offering for export 125,000 MT of milling wheat for Feb/Mar delivery.

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For beans, export business has been relatively quiet of late. Monday’s export inspections for the previous week totaled 40 mb versus 48 mb last week. In Argentina, light showers are expected over the next few days but will provide little relief from the recent turn to a drier pattern while most of Brazil is enjoying at least satisfactory crop weather.

In the corn market, ethanol margins have shown signs of improving of late as corn prices have stalled while ethanol and distillers grain prices have been moving higher. Weekly export inspections were 22 mb this week versus 11 mb in the previous week’s report.

Grains Give Back Early Gains Overnight

Grains were higher at the start of the overnight session with beans leading on a 12-cent advance reaching the critical $14.50 area, but pulled back to the $14.45 range. Beans were up 4 cents, while corn posted a 2-cent change. Wheat was modestly lower.

Weather in Argentina continues to be a focus of the trade as concerns about excessive dryness has the potential to cut into record-large crops there. With Argentine soybeans 77% planted by a December 20 date which marks the end of the ideal window, and only 74% of corn, one-fourth of Argentina crops are at risk of drought stress from shallow rooting. And the crop may face significant deterioration if fears prove justified that a fresh La Nina is emerging, as some conditions, such as cooler Pacific water temperatures, indicate could be on the way. If La Nina materializes, not only does this bode poorly for Argentina’s dry streak continuing, but also drier-than-normal conditions are likely to persist in the US southern Plains.
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For wheat, weather forecasts call for continued dryness in the southern Plains but some chances of rain in the upper Plains. Export tenders overnight were encouraging with Jordan and Bangladesh looking to import sizable wheat shipments from optional-origin sources. Last week’s US wheat export numbers came in above expectations at a combined 647,500 MT for old- and new-crop. If export demand continues to be strong in the coming weeks and no sizable moisture events in the Plains, wheat prices should show more upside potential.

In corn, lackluster ethanol demand and sluggish exports continue to keep prices drifting lower. Furthermore, the prospect of a jump in 2013 corn acreage keeps new-crop Dec futures on the defensive as well. However, the potential of sharply lower prices from here seems remote with exceptionally tight old-crop stocks and the threat of continued drought problems into 2013. As such, corn may be a follower to what transpires in the wheat market in coming weeks.

Cash Grain Continues to Flat-Line

Corn and soybean basis saw little movement again this week as tight crop inventories mixed with struggling demand keeps basis levels treading water. For the week, US average corn and soybean basis levels averaged only a 0.3 cent a bushel increase.

For corn, Thursday’s EIA ethanol number showed the slump in production continued as weekly ethanol production was only 792,000 barrels per day. Grain Hedge still looks for lower corn used for ethanol than USDA’s projection of 4.5 billion bushels for the year. Tight crush margins continue to force some plants to curb production, and this week we saw key plants in Eastern Nebraska lower their basis by a nickel or more. On the export front, Friday’s weekly tally came in at 138,500 MT versus expectations that ranged from 200,000 to 450,000 MT. Basis levels at the Gulf slipped 4 cents a bushel for the week while river terminals were unchanged on average thanks to lower barge rates.

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In beans, export business continues to be white hot, although much of the business is being directed at new-crop 2013/14 sales. As such, basis levels continue to be relatively flat. Weekly export business totaled 978,000 MT, above the high end of expectations at 950,000 MT although 595,000 MT was for new-crop delivery. At the Gulf, basis levels firmed a modest 2 cents a bushel. Crushing plants were unchanged on average across the sector.
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Strong Wheat Sales, Corn Disappointing

Grain markets were modestly weaker overnight as the rally started after the January crop report continues to stall. Nearby corn was off 1 cent, while soybeans and wheat were off 3 cents overnight.

Soybeans continue to try and counter-balance the forces of strong Chinese demand with record large South American production. Thursday, China bought 510,000 MT for new-crop delivery and another 113,000 MT sale was announced for unknown destinations. In South America, overall crop conditions seem adequate to produce a record large crop, but the extent of the crop size continues to be in question. Showers in Argentina are expected over the next week but there won’t be enough rain to eliminate concerns about dry weather stress on crops and will likely miss key soybean areas in central Argentina.
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For corn, Thursday’s EIA ethanol number showed the slump in production continued as weekly ethanol production was only 792,000 barrels per day. Grain Hedge still looks for lower corn used for ethanol than USDA’s projection of 4.5 billion bushels for the year. Argentine farmers are starting to worry that this season’s corn crop may start to suffer from dry conditions after more than a month of consistently hot and sunny weather, the Buenos Aires Grains Exchange said on Thursday. The Rosario Grains exchange pegged Argentina’s corn crop at 26.5 MMT, up 2.5 MMT from its previous estimate but 1.5 MMT below USDA’s current estimate.

In wheat, there are some chances of precipitation for parts of the Plains in the coming days, but if realized it will provide only modest drought relief.

Weekly export sales as report by the USDA were as follows:
Corn: 138,500 MT (expected 200,000-450,000)
Soybeans: 978,300 MT (combined old- and new-crop expected 750,000-950,000)
Wheat: 647,500 MT (combined old- and new-crop expected 350,000-550,000)