February 27, 2012
By: Craig Haugaard, Grain Origination Manager
CORN: 5 lower
We have crude oil lower this morning which may put some pressure on corn at the open but the headline that is grabbing my attention this morning is a Reuters story with the following headline: Analysis: Oil price rise raises specter of global recession. The story speaks to the fear that Iran and Israel are headed to a showdown which, according to the story, would send crude oil to $150/barrel or more and would crash the European economy as well as cause havoc here in this nation. With the corn/crude relationship is it reasonable to expect that a run up in crude oil prices would rally corn as well? I guess we will sort that out in the coming weeks. So, what does that mean for corn in the coming days? I think we have two fairly distinct markets here, old crop and new crop. In the old crop corn we have a historically tight carryout to use ratio and it appears as if we could see increased export number based on the drought in South America that could tighten it even further. Taken at face value one can make the case that old crop corn may still have bullish fundamentals in place. New crop on the other hand is looking at a projected doubling of the carryout from this year. The0 new crop market at its root is a weather market. Assuming normal weather this market will be much lower at harvest time but if we have a repeat of the 147.2 bu/acre of this past harvest we see prices explode in order to ration demand.
Technically all three of my indicators remain bearish both old and new crop. In the December futures we should have some support at the $5.47 level.
With the USDA projecting a carryout shrinking down to 205 million bushels next year’s beans remain the fair-haired child of the bulls. To achieve the 205 carryout the USDA is assuming a near record yield of 43.9 bu/acre. If we slip to a 43 bu/acre national average yield, for example, the carryout drops to 139 and prices are a lot higher than they are at the present time. When viewed from a world perspective it is expected that we will see the world carryout drop by 10 MMT from the past year. This will give us the tightest world supply/demand ratio since the 2001/02 crop year.
Technically, all three of my indictors are bullish both old and new crop beans. We are approaching the resistance in the November futures at $12.73 so it will be very interesting to see how the market reacts when we hit that level.
WHEAT: 6 lower
The wheat complex is as ugly as beans are beautiful. We are projected to have an all wheat carryout of 957 million bushels and that is the 2nd largest early season projected carryout since 1987. The only time we have had a slightly larger carryout projected in those years was in 2010 when the Chicago futures price was at roughly $4.92. Anyway you cut it we are looking at a carryout that is usually associated with much lower prices. On the world stage the global carryout is expected to increase as well which does not bode well for prices.
My technical indicators are all bearish both old and new crop for both the Minneapolis and Kansas City markets. We have support in the Minneapolis September futures at $7.51. If that gives way this could get very ugly.
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.