With Harvest About Wrapped Up, Focus Is On Demand

Commentary for October 25, 2012

Harvest is about wrapped up for much of the nation with the USDA pegging
corn at 87% complete and soybeans at 80% in its’ most recent report. Only a couple of
states in the Eastern Corn belt lagging behind with Ohio at 50% complete and Michigan
48%. With harvest nearly complete, the grain markets have shifted focus from supply to
demand and demand has really become a concern.

First, ethanol use of corn is running behind the seasonal pace to meet current
USDA expectations. Our models are indicating that if the current use of corn for ethanol
continues we will fall about 125 million bushels short of current USDA projections.
Feed demand is another area of concern as the Cattle on Feed report from last week
showed significantly lower placement figures than last year at the same time. Export
sales for corn and soybeans were disappointing this week coming in below expectations.
Wheat was the lone bright spot as far as exports were concerned, exceeding expectations.
Despite weak sales this week, corn and beans are still ahead of pace to meet current
USDA projections mostly due to pre-sales from last year, but have slowed drastically
over the last several weeks. It is interesting however; that corn export inspections
(the amount actually being shipped) is lagging behind the pace needed to meet current
estimates. Bottom line is that demand destruction has taken place for corn at these price
levels and prices need to move lower to spur more robust demand.

Technically speaking, for soybeans the November contract is meeting heavy
resistance in the $15.65 to $15.70 area on the daily chart. Providing resistance is the 100-
day moving average and in the area is the bottom of the range that was traded in July and
August. It will most likely take a weather development from South America or stronger
outside markets to push past this level with conviction. In the short term, the upside
potential is rather limited for soybeans.

Looking ahead to Friday, we get the options expiration for November contracts
and the third quarter gross domestic product figures will be released at 7:30 AM central
time.

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FUTURES TRADING IS NOT APPROPRIATE FOR ALL INVESTORS.
PLEASE READ OUR RISK DISCLOSURE.