Corn: What we saw on Monday was typical trade before a USDA report. After a good start, following a higher overnight market, corn started to set back in reaction to a calming of outside markets and speculators getting flat ahead of Tuesday's session.
There have been many producers that spoke with us and we are not hearing any that thought this frost would result in permanent damage to the corn. Even speculators in Chicago who would want to buy this market on a frost scare can’t do it in fear of a bearish report. Any buyers who want to be frost buyers will have to wait until the report, while keeping fingers crossed for at least a neutral report.
While we expect this report to be neutral to slightly bullish, there does hold at least the chance for a bullish enough new crop number to break the 400 level. Estimates for the new crop carryout are wide, anywhere from 1.500 to 2.400 billion bushels (with our estimate being 1.725). Most analysts feel the recent higher demand will lead to a draw in old crop with an average guess of 1.853 vs the April estimate of 1.899. Our estimate on old crop once again is 1.783.
There is no doubt that corn has trended sideways since January and if this new crop report does come in near the average guess, more sideways action can be expected. What this would allow us to do is trade futures rather than trading options. Another approach may be to sell options on bounces as the lower volatility also means less chance of sold options to finish in the money. There is still an inflated risk premium in options even though recent trading has been much calmer than recent years. A USDA report holds the opportunity to break outside of the recent range but at the moment estimates do not call for it. Even if the sideways range continues, hedgers need to sell bounces to be protected from the potential downside moves this market can find…Ryan Ettner
Soybeans: There was strong buying early in the session in response to the Euro’s $1 trillion credit package which sought to stabilize fears of a contagion stemming from Greece economic woes. This buying lasted until about 10 am when traders started to buy back the lower dollar. As the dollar rallied, all commodities started to back away from strength and caution became the clear direction as any contagion would result in de-leveraging…a risk that would be significant for over-inflated commodity futures.
Deliveries were heavy at 421 contracts, which suggest there is no shortage of US supplies. USDA will release the first estimate of 2010 supply-demand at 7:30 am. Our table is on “Grains Fundamental I” page in the Advisory section of our web site. Expect old crop stocks to drop from 190 to about 180 and new crop stocks to exceed 300 million bushels. This increase in stocks has potentially very bearish long term consequences unless something changes dramatically.
Argentina Ag ministry estimated harvest at 77% and yields suggest a crop of 54 million tonnes vs. 52.5 previously estimated. Rumors of China buying US bean oil and beans continue to circulate. Gulf prices were +2-4 cents on Monday, but we were not sure if that was reflecting the strong barge market (factoring in oil slick EPA risk) or because of export demand. Export inspections were only 5.3 mil bu versus 8-12 expected…Bill Biedermann
Wheat: Tuesday morning at 7:30 am central time, USDA is scheduled to release its first 2010/2011 domestic and global supply and demand estimates. In a nut shell, we have likely experienced the heaviest world stocks of wheat at 195.82 million metric tonnes by using Allendale estimates of 191.5 mmt, down 2.2%. However we do anticipate US stocks of wheat to be 954 million bushels for 2010-11 vs USDA’s estimate of 950 million for 2009-10. Even with supply limited acreage down 9% year on year, stocks are expected to rise within the US and is fundamentally bearish to price. Presently, USDA is using 490 per bushel for 2010-11 vs an old crop season average farm price of 490, no change year on year.
It is estimated funds were sellers of 6,000 contracts of wheat on Monday on the lack of any frost/freeze damage even though weekly inspections were more than 5 million bushels above the high end range of pre estimates of 15 million.
Last Monday, USDA reported the wheat 19% greater than the five year ave in the good to excellent area. On Monday afternoon, USDA’s NASS reported the good to excellent conditions of 66%. That is a decline of 2%, which has been fundamentally expected as per our weekly condition reports…Joe Victor
Bill Biedermann is Sr. Vice President at Allendale. Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Joe Victor is Vice President at Allendale. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.