December 16, 2011
By: Craig Haugaard, Grain Origination Manager
CORN: 1 higher
I had a fellow call me up yesterday and ask me what I thought the markets were going to do. After I got done giving my opinion he called me a Grinch. So in honor of the season I will play along; Every Farmer down in Farmville liked Bullish Markets a lot, but the Grinch Grain Guy, who lived just north of Farmville - did not. The Grinch hated rallies - the whole Bullish season. Now, please don't ask why; no one quite knows the reason. It could be, perhaps, that his shoes were too tight. Or it could be that his head wasn't screwed on just right. But I think that the most likely reason of all... may have been that his heart was two sizes too small.
I suppose the question to ask is, “Am I a Grinch or am I realistic?” Here is what I think could happen as we look forward. Let’s assume that as a nation we plant 95 million acres of corn and harvest 87 ½ million. For grins let’s also assume that we will have a trend line type yield of 161 bu/acre and that our carry-in will be the 848 million bushels shown in the December 9 report. That would all combine to give us a total supply of 14.395 billion bushels. If we assume demand of 13.1 billion bushels we see the 2012/13 carry-out swell to 1.835 billion bushels. I would argue that if we see that type of a carry-out we will see the new crop futures a year from now vacillate on one side or the other of $4.00. That would be roughly $1.45 lower than where the December 2012 futures closed last night. That covers next year’s new crop but what should you do with the stuff that is in the bins from this fall? We will see day to day fluctuations but if we look at the numbers that should matter the path of least resistance is probably still lower. The world ending stocks of corn is now up nearly 6 MMT from the last report to stand at 127.19 MMT. On top of that put a sharp increase in feed wheat usage and it is tough to create a compelling bullish argument at this point. Now, if we get a major drought developing in South America and/or see the Iranian government make a serious attempt at shutting down the Strait of Hormuz we could very well see a rally. Having said that I never like to have a marketing plan that is dependent on drought or somebody yelling Allah Akbar followed by a mushroom cloud in order for me to profit.
Technically, all three of my indicators are bearish and as you can see on the following monthly continuation futures chart so are the long term technical indicators.
SOYBEANS: 4 higher
This market was higher on ongoing weather concerns coming out of South America. Once you get past those concerns the bullish news experiences a drought itself. Exports are currently running 33% behind last year’s pace with the USDA projecting that eventually we will end the year with 14% less exports than we did last year. If that is to be the case we better pick up the pace pretty soon or we will see the USDA increase the ending stocks number. Sometime this morning Informa will be releasing their latest 2012 planting projections. The last time they did this they pegged next year’s planted acres at 76 million. Let’s assume that this number will be unchanged and that we will harvest 75 million acres. Toss in a national average yield of 43.5 bu/acre and usage of 3.15 billion and we have just created a 2012/13 carry-out of 342 million bushels. Do that and you will probably have a hard time keeping the November 2012 futures above $10. Technically, two of my three indicators are bullish the March futures but when I look at the monthly continuation charts the story changes with all three of the indicators bearish. The monthly chart is included below.
WHEAT: 2 higher
In looking for good news in this market all that I could find was that apparently Kazakhstan has a bunch of wheat they want to move into the export market but the infrastructure is not allowing them to readily accomplish that so it may send some of their buyers elsewhere. I spent a month in Kazakhstan a few years ago and am not surprised to hear they still have a few problems. At the bottom of these comments I am including a picture of the milk delivery system on one farm I visited. Once we get past that ray of sunshine the news is gloomier. Exports continue to struggle and are now running 25% less than last year at this point. Analysts looking at the 2012 EU crop are projecting it to be up 3% and of course we continue to battle cheap wheat being offered out of the Black Sea.
From a technical perspective all three of my indicators continue to be bearish both the Minneapolis and Kansas City futures. It doesn’t look like this market wants to give anybody a Christmas present.
The information contained above was taken from sources which Wheat Growers believe to be reliable, but is not guaranteed by Wheat Growers as to accuracy or completeness and is made available for information purposes only. There is a risk of loss when trading commodity futures and options.