Corn: Monday’s trade was again mainly weather based. This time around, corn traded more as we would expect it to on Argentina weather. Damage to corn is a done deal as pollination is finishing up. Continued crop stress will become a soybean story, which corn can follow along with. That is more of the type of trade seen Monday.
Corn made a strong push up to recent highs but stopped short of taking those highs out. That type of trade is also expected just ahead of a major report. Buying is one thing but taking out resistance is courageous ahead of such an important report. In all it can be said that trade is looking for a slightly bullish report.
There are a few different numbers that trade is looking for on this report. First we see that the average trade estimate for US carryout is 749 million bushels compared to the 848 estimate last month. Some of that drop in carryout comes from yield expected to drop from 146.7 last month down to 146.16. Also on this report will be a 1st quarter stocks report that trade will look to come in at 9.391 billion bushels. Yet another number we need to look at will be global ending stocks which trade will look for 123.518 million metric tonnes. That final number would reflect an expected drop in Argentina corn production.
In all, it can be said that trade is expecting a modestly bullish report. What is most important to remember looking back at previous Jan reports is that the average move over the last five years is for 24 cents up or down. You don’t get 24 cent moves on a report unless trade was quite wrong with their estimates going in…Ryan Ettner
Soybeans: Beans started the week strong with funds buying 8,000 contracts and pushing the March contract 36 1/2 cents higher. This is the largest purchase of beans from the funds since at least Dec. 1. Weather is the major reason again for the rally. It looks like the majority of the growing regions will get rain over the next few days. The rain event should start tonight and finish up on Wednesday.
Yes, this would usually be bearish but some weather models have another dry and hot ridge moving in again behind this storm. As we mentioned before the most crucial time for South American beans is the end of January through February. That time frame is just like our August.
The USDA released a sale of 140,000 tonnes of beans to an unknown buyer. That is supportive after seeing poor exports last week.
The other issue we will need to be concerned with after the USDA report on Thursday is that beans are still undervalued compared to corn. Looking at the price of beans vs. the price of corn at these levels it is more profitable to plant corn than beans. That relationship will most likely come together with beans needing to buy acres. We are looking for a 1 million acre increase on beans but a 2 million acre increase in corn. We are short right now but will change our objective on the downside…Steve Georgy
Next page: What's up with wheat?
Wheat: Spillover support from the other grain pits, some index fund rebalancing and continued inter-exchange wheat spreading impacted the markets Monday.
The most notable aspect of Monday’s trade was the continuing roll of selling the Minneapolis wheat and buying the Chicago market. The March Minneapolis was up 8 3/4 cents while the March Chicago was up 17 cents. This spread has been narrowing as traders are prepositioning before expanded position limits take effect on Jan. 17.
The CBOT exchange is awaiting approval from the CFTC to let funds expand their position limits. If approved, it will increase single month position limit for wheat from 5,000 contracts to 12,000 contracts. It will increase all wheat position limits from 6,500 contracts to 12,000 contacts. This change in position size will allow funds to carry a larger Chicago wheat position. Right now funds that want to own more wheat contracts than they are allotted by the CBOT buy the Minneapolis and KC contracts to fulfill their ownership needs. With the expanded CBOT limits they will not have to own as many Minneapolis and KC positions. The trade is liquidating out of some of their Minneapolis contracts and buying the Chicago contracts before the funds look to make their anticipated jump from the Minneapolis exchange into the Chicago exchange. The trade is anticipating for these new position limits to take effect on Jan. 17.
We also saw the start of the index fund rebalance on Monday. Over the next two weeks, it is anticipated that the index funds will be buying 21,948 contacts. Export inspections came in at 10.754 million bushels. This was down from last week’s 13.366 million shipped out. Monday they purchased 5500 contracts of wheat. The next few days trade will be dominated by position squaring before Thursday.s USDA report…Jim McCormick.
Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Steve Georgy is a Sr. Broker/Manager at Allendale, Inc. Jim McCormick is Senior Broker/Manager at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com.