January 13, 2012
By: Craig Haugaard, Grain Origination Manager

CORN: 4 lower

Based on the markets yesterday it looks as if Friday the 13th came a day early.  With an increase in the national average yield and production with perhaps a smaller than expected increase in demand the traders were all running for the door yesterday.  For the session the funds dumped 18,000 contracts and almost certainly would have sold more had we not been locked limit down.  Those of you that had a chance to attend the annual meeting know that I talked about the type of 2012 new crop picture that I think the USDA will present us with in the upcoming February Ag Forum.  The ending stock number that I think we could end up projecting as a result of the assumptions that I believe will be made in the Ag Forum will be roughly 1.75 billion bushels.  We have a long way to go before we get a crop in the bins that we haven’t even planted yet but I suspect coming out of the Ag Forum we will be looking at a dismal outlook and the storm clouds could get even darker once the planted acres report comes out on March 30.  The $5.87 area had been a good selling point on the December 2012 futures.  With yesterday’s action I would now not be surprised to see the December futures drop down and test support at $5.35.  The old crop chart has been severely damaged as well with the next logical level of support that jumps out at me coming at $5.76.  Can this market rally?  Of course it can.  We still have a South American drought, we still don’t have ht crop in the ground it, we still don’t know if we will have favorable weather in the USA this growing season, etc.  So we may have another chance at a rally, in fact the seasonal trends would tell us that the odds favor that.  Having said that the report today probably fundamentally changes the way this market will be viewed in the coming months and traders will be more likely to view rallies as selling opportunities rather than the start of another bull move.  Until something fundamentally changes in this market once again that would be a wise approach for us to take as well.        

On a totally unrelated note a number of you asked about my slow cousin Jimmy at the annual meetings this year.  I know many of you had hoped to meet him and he had planned on attending this year but had a lapse in judgment New Year’s Eve that has him fighting some health issues right now.  He and some of his buddies were apparently having a pretty good time until somebody got the brilliant idea to snort some coke.  Apparently Jimmy was the first guy to try it because, as he explained to me, “Heck Cwaig I had a six pack of it in the fwidge so I thought why not.”   Folks at the party tell me he opened a can, stuck a straw in and then shoved the other end of the straw up into his nose and took a bog old snort.  Apparently all those carbonated bubbles in his nasal cavity didn’t feel very good because apparently he put on quite a show.  Long story short is that now he has some infection in his nasal cavities and wasn’t feeling good enough to come to the annual meeting.  He did tell me last night, “Cwaig, I am nevew doing coke again.” 

SOYBEANS: 3 lower

All I can say about the bean market is thank God for a drought in South America.  With the projected carry-out unexpectedly swelling to 275 million bushels the futures market opened down sharply yesterday.  Obviously it closed lower for the day but it did close up over thirty cents from the day’s low.  It was able to do this for one reason and one reason only, fear of the ultimate impact of the drought in South America.  In USDA report in January of 2009 pegged Argentina bean production at 49.5 MMT while Brazil was at 59 MMT.  By May of 2009 the USDA had reduced their production estimates to 34 MMT for Argentina and 57 MMT for Brazil.  In the space of a few months we wiped out 17.5 MMT of expected bean production as the drought tightened its grip in South America.  It is the fear that this pattern may repeat itself that allowed the beans to come off the lows yesterday and it is this fear that may very well prove to be supportive to beans from here.  At the annual meeting we discussed the need to buy bean acres away from corn should the bean crop in South America sustain major damage.  Wouldn’t it be interesting if yesterday turned out to be the start of that process? 

WHEAT: 3 lower

In 2009/10 we had an all wheat carry-out of 976 million bushels and the price of Chicago wheat futures that year averaged $5.08 with Kansas City roughly $0.20 higher than that and Minneapolis futures $0.40 higher than Chicago.  With increasing world stocks and some analysts now projecting that our carry-out in the coming year may swell to over a billion bushels can anyone give me a compelling reason that we may not go back and visit those not too distant price levels?  From a seasonal approach Minneapolis wheat futures tend to peak out in mid-February.  Last year we had a peak then and then had a little higher peak in May when weather problems were plaguing the ability to get a crop planted.  I am pretty sure that nobody really likes the current Minneapolis September futures price level but I am including it as the red line on the following monthly wheat continuation chart to remind you that from an historical perspective selling some bushels here may make you look brilliant by the time harvest rolls around in a few months.

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.