Corn: As we draw closer to the report at the end of the week, we continue to see more estimates on carryout. Earlier Monday the research group F.A.P.R.I. came out with a new crop ending stock estimate lower than most others we have seen at 1.346 billion bushels.
Also, Monday we saw the first poll of analysts in regard to expected carryout this Friday. Bloomberg newswire’s analyst poll suggested 777 million bushels. That is down from the February carryout of 801. This is common as trade has assumed a bullish corn report during January and February, so there is little surprise they are looking bullish again in March.
New crop corn followed better than expected to start the day but ended just slightly higher as the acreage report isn’t all that far away. Our estimate for Friday’s report is for a carryout of 772 million bushels but even a reduction to that level still suggests an old crop price of 650. That is what makes any buying beyond current levels appear a little excessive and due for another correction.
Tuesday, the trade will see another analyst’s poll that will be the key numbers watched going into Friday. New crop corn did take out a level of heavy resistance overnight just to run into another wall of selling at 575. Any good size bounces in new crop have to be considered a gift at least until the acreage report or any significant changes in spring weather. Small buying can still be expected in old crop corn until Friday with only a small portion of that expected to spill over to new crop…Ryan Ettner
Soybeans: Spreaders were taking profits, selling beans and buying corn on Monday. This was the first time funds were selling beans in 16 sessions. Funds sold 5,000 contracts of beans and bought 8,000 corn. It seems like the trade is positioning for the USDA report on Friday.
We are looking for a decrease in ending stocks for corn, wheat, and beans. Last month, beans had a carryout of 275 million. We are looking for them to tighten up to 246 million tonnes. USDA will also look at making some revisions to South America’s crop. We are looking for a reduction down to 116 million tonnes for Argentina and Brazil combined. This is a 2 million bushel reduction for each.
It's interesting to see that the market is pricing the South America crop problem as an “old crop” issue. USDA in the AgForum conference suggested this will mainly benefit US “new crop” exports. Beans could start to find more downside if we see profit taking in some of the outside markets. The dollar and energies were quiet and didn’t give much help to support beans on Monday. Keep a close eye on the dollar. This could start to be a better indicator for money flow…Steve Georgy
Wheat: The wheat market opened the week on a mixed note with the Chicago and Kansas City markets closing lower while the Minneapolis contracts settled higher.
The strength in the Minneapolis was derived from an attempt by the spring wheat market to buy acres/keep acres for the upcoming planting season. We are hearing stories of farmers shying away from the spring wheat due to protein discounts in the cash market. With the current price of corn and beans they feel that they can make more money planting these crops instead of wheat. The Chicago and KC markets were weaker as some short term traders booked profits after last week’s bounce.
The outside markets did provide a little support for today’s trade. The U.S. dollar was weaker and that helps make our crop more attractive in the export market. The corn market traded higher all session and that provided some spillover support.
The weather is also providing support as a warm forecast for portions of the southwest is bringing the crop out of dormancy early. This will make the crop susceptible to any cold snaps that might occur over the next few months. The warm weather is also drying down the soil and that could cause additional problems down the road.
Friday’s commitment of traders report showed that the funds have cut their short position by 8217 contracts. This still leaves them with a near record 51,363 contracts short. This leaves the market susceptible to a continued short-covering rally if the funds choose to liquidate out of the wheat market. Allendale cautions traders from getting overly bearish at these price levels; with the near record short position the funds have, we anticipate that we will have bouts of profit taking like we have saw last week. With the record supply of wheat in the world, we would recommend hedgers to trade advantage of rallies to hedge…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