Corn focuses on Chinese buying, soybeans stuck on South America estimates

Allendale Wrap-Up 4/10/2012

Corn: Trade will be looking for a drop in corn stocks tomorrow from 801 mil bushels last month to 721. This is a number that seems agreeable as trade is not expecting some major adjustment this month. A more moderate estimate is easier to expect compared to other estimates that have been extreme and resulted in large moves on report day. This new 721 carryout would suggest a price near 665 for May corn. Instead of trading the expected carryout number, trade instead sold partially on news that China bought 50,000 tonnes of Ukrainian corn over the weekend. China has never bought corn from the Ukraine before. There has been a lot of talk just how much corn China will be buying lately and those numbers are large. At the same time, trade has also assumed that every bushel of corn China buys comes from the US. If trade is going to assume 100% of corn sales to China come from the US than 95% would be considered a disappointment. New crop remained strong through most of the day which is likely caused from exiting of the new crop/old crop spread. It could also be said that some buying was the result of cooler temperatures to start this week. A large number of planters started moving today with most of the rest talking about starting by the end of the week. Right now temps are cool but the extended forecast calls for most areas to warm this weekend going all the way to next weekend. That same forecast calls for rains in MO, IL, IA and OH which doesn’t hit every area that needs it but will be beneficial. This afternoon’s Crop Progress report showed corn planting advanced from 3% complete last week to 7% as of Sunday night. That was just under the 8% average trade guess. Since everyone expects this week to be the big start to planting this may not have much of a bullish reaction. Look for trade to quickly react to the carryout numbers tomorrow and then quickly turn focus back to planting conditions/pace…Ryan Ettner

Soybeans: Beans were down about 3 cents ahead of the USDA report tomorrow. USDA will release the first look at carryout numbers since the quarterly stock data at the end of last month. The trade is looking for a reduction in stocks from 275 million down to 246 million. That is a 26 million bushel decline. We feel they may try to make a deeper cut down to 240 million bushels. The bottom line is that even with the carryout sitting at 240 million bushels we should be priced near 12.60 for the May contract. We are nowhere near 12.60! So that means we are not trading carryout and ending stocks. The market is still concerned with South American beans and the fact that estimates continue to get smaller. For now, South America has not retaken the soybean export market. We are still getting some business. US beans continue to stay cheaper than out of Brazil and Argentina so sales should stay strong until that turns. This may last another couple weeks. The funds have been a big part of the strength and they are currently holding a record long position in beans and bean meal. Just in the last 9 weeks they have increased their position by 194,769 contracts. This is an impressive run and could continue until we see a reason for them to get out. We are still trailing a sell stop below the market so when that change happens we can take advantage of the pullback. Beans are near the contracts highs and we need to see how they react over the next few days…Steve Georgy

Wheat:  The wheat market had a mixed day today as spreading and position squaring dominated the day’s action. By the settlement, the Chicago and Minneapolis markets closed higher while the Kansas City market settled lower. The Chicago market was supported by wheat corn spread unwinding. With a tight supply of corn, end users are choosing to feed wheat instead of corn. This has kept the wheat corn spread active. Today traders were selling corn and buying wheat. Additional support came to the Chicago market as traders were adding some weather premium into the market. The Eastern Cornbelt is forecasted to have freezing temps the next two nights so there is concern about potential damage to the crop.  Allendale does not believe this cold snap will do permanent damage to the crop and a bumper crop is still in the cards. Tonight’s crop ratings show that the crop continues to improve. The USDA estimates that 61% of the crop is rated good to excellent. This is up 3% from last week and is 25% better that the crop was rated last year at this time. The spring wheat is 21% planted. This is up from the 3% planted at this time last year and the 5 year average of 5%. The planting pace on the spring wheat is bearish the Minneapolis market but with Northern Plains farmers more interested in planting corn or beans the spring wheat contracts should find some support. The USDA also reported export inspections at 17.605 million bushels. This was up from the previous week’s inspection number of 15.835 million bushels. Tomorrow, the USDA will be releasing its April supply/demand update. The trade is looking for domestic ending stocks to come in at 792 million bushels. This is down from the March estimate of 825 million bushels. The trade is looking for world ending stocks numbers to come in at 208.621 million. This is down from the March world ending stock estimate of 209.580 million tonnes. With favorable weather on the horizon, Allendale believes we are on the cusp of producing a large wheat crop. Using current supply/demand figures Allendale is anticipating second highest carry out of wheat for the U.S. in the past 10 years. We are anticipating world stocks to be at record levels at the end of this production year. With this in mind, we would recommend hedgers to take advantage of rallies to hedge/sell inventory. For traders who want to own wheat, we would recommend using low risk options and not chase rallies…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.


About the Author

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.

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