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Published May 07, 2012, 09:14 AM

Markets slip lower

Wheat lost ground big last week on improving conditions. The Wheat Quality Tour is estimating a much better than expected winter wheat crop while crop conditions in the Northern Plains have been close to ideal.

By: Ray Grabanski, Agweek

Wheat: large crop potential

Wheat lost ground big last week on improving conditions. The Wheat Quality Tour is estimating a much better than expected winter wheat crop while crop conditions in the Northern Plains have been close to ideal. For the week ending May 3, July Minneapolis dropped 33.25 cents, September Minneapolis dropped 32.25 cents, July Chicago lost 34.5 cents and July Kansas City gave back 26.5 cents.

Wheat started last week off on the defense with most of the early selling because of a warmer than expected weekend. Weather forecasts were calling for a potential of freezing temperatures for parts of the soft red winter wheat region of the U.S. but the only area that had freezing temps was Minnesota. The selling continued on May 1 with most of the early pressure spilling over from a lower overnight session. The overnight session was pressured from the May 3 crop progress report, which showed another week of improving crop ratings for the winter wheat crop. Fundamentally, wheat does not have any friendly news of its own as the winter wheat crop is advancing in good shape while the Northern Plains planting progress is moving rapidly ahead.

For the first time in a long time, wheat was the leader May 2, but not in a good way. Wheat opened the May 2 session lower and proceeded to extend session losses. Selling was tied to the results from the Wheat Quality Tour. The tour wrapped up its first leg of scouting and what they found was one good wheat crop. Early estimates have the first leg of the tour at 45.8 bushels per acre, compared with 35 bushels last year, and one the best yields since 2003. Kansas’s observations estimated that state’s yield at 53.6 bushels, compared with 40 bushels last year and 40.7 bushels for the three-year average. The selling pressure was enough to push wheat to lows not seen since July 2010.

The May 3 session opened with modest gains to minor losses. Early support was tied to reports from the Wheat Quality Tour. Second day tour results showed a little poorer wheat crop. Wheat also found some support from a stronger corn market. Minneapolis on the other hand could not find any support. Planting progress is moving ahead at a decent pace and with the recent rains, most areas are sitting in good shape. Temperatures are expected to warm up and that will aid in crop emergence. Heat is the main ingredient missing in the Northern Plains and it sounds like that will get added this week.

Corn: ideal weather, rapid planting

The corn market traded lower last week, with July down 12 cents and December was down 20 cents. Corn was under pressure last week with ideal weather and a rapid planting pace. Tight stocks offer support to old crop, while great weather and an increase in acreage pressures new crop.

Corn traded on both sides of unchanged for the first two days of last week as it searched for fresh news. The freezing temperatures that were forecast for the eastern Corn Belt did not materialize over the weekend. The Corn Belt weather is wet for about the next 10 days, which is good for the corn in the ground but could slow planting of the remaining acres. The export inspections also came in below estimates on April 30.

The market closed sharply lower on May 2 with the rapid planting progress and an ideal weather forecast causing long liquidation selling. Planting progress made a huge jump last week to 53 percent of the corn crop in the ground, compared with 28 percent the previous week and a 20-year average of 29 percent. This was a 25 percent jump in one week with the western Corn Belt making the most progress. There was also unwinding of the old versus new crop spreads that added additional weakness to the old crop contracts. The sharp losses in the wheat complex also spilled over to the corn market. And traders continue to talk about higher yield potential with the early planted crop.

The market continued to move lower to end last week. The lack of any threatening weather and fresh news pressured the trade. Export sales were huge, but this news was already in the market.

Ethanol production for the week ending April 27 averaged 894,000 barrels per day. This is up 3.3 percent versus the previous week and up 2.17 percent versus last year. Total ethanol production for the week ending April 27 was 6.258 million barrels. Corn used in production for the week ending April 27 was estimated at 95.2 million bushels. Corn use needs to average 94.2 million bushels per week to meet USDA’s projection. Stocks were 22.2 million barrels, which is up 1.7 percent versus the previous week and up 12.4 percent versus last year.

Planting progress as of April 29 had 53 percent of the U.S. corn crop planted, up from 28 percent the previous week and above the five-year average of 27 percent. Emergence was 15 percent, up from the 4 percent last year and the five-year average of 6 percent.

Soybeans: technical pressure

Soybeans closed last week 10 cents higher to 20 cents lower. Longer-term fundamentals remain bullish for the soybean market.

July soybeans opened lower April 30 and experienced choppy trade through most of the session before a late surge to close with strong gains. Early pressure came from significantly more deliveries than expected on first notice day for May contracts. Continued ideas that the market is overbought pressured as well, sparking some long-liquidation into midday. Informa released a new production estimate for Argentina, reducing its projection 5 million metric tons to 40 million metric tons, which is down 13 million metric tons from the initial early-season estimate of 53 million metric tons. The market continues to see strong demand with USDA announcing another sale to China, this one for 220,000 metric tons of new-crop soybeans.

On May 1, soybeans opened lower amid continued ideas that the market is overbought. Additional deliveries on the May contract were seen as bearish as well. Old-crop contracts saw commercial selling tied to a slowdown in near-term demand throughout the day. New crop contracts were higher, with support from both commercial and noncommercial traders. The strengthening inverse in new-crop futures spreads indicated increasing bullishness on the commercial side. The South American harvest is nearing completion, and poor yields have the U.S. in position for a summer of strong exports. USDA announced a sale of 110,000 metric tons of new-crop soybeans in China, marking the third consecutive day a sale to China has been announced.

July soybeans opened lower on May 2 and closed with sharp losses, leading to a lower open on May 3. Bearishness in the other grains provided pressure on May 2, while follow-through selling and negative outside markets were negative factors on May 3. The market remains susceptible to moves such as this because of the large long futures position held by investors. Despite the correction, commercial interest remains strong, indicating increasing bullishness in longer-term fundamentals. USDA announced a sale of 204,000 metric tons of new crop to an undisclosed location on May 2, and an additional 232,000 metric tons of new crop to China on May 3.

A sale of 120,000 metric tons of new-crop soybeans to an undisclosed location was announced late on May 3. This was the sixth consecutive day with an announced sale, bringing the total over that time to 1,112,000 metric tons.

Barley

USDA estimated barley export shipments pace for the week ending April 27 at 12,000 bushels with all of the bushels going to Mexico. There were no reported barley export sales for last week.

As of April 29, 67 percent of the nation’s barley had been planted compared with 50 percent the previous week and 39 percent for the five-year average. Barley emergence was estimated at 21 percent compared with 11 percent the previous week and 12 percent for last year.

Cash barley bids in Minneapolis dropped 10 cents last week, putting feed barley bids at $5.20 per bushel while malting barley bids dropped to $7.05.

Durum

USDA reported no durum export shipments for the week ending April 27. There were no reported durum export sales last week.

As of April 29, 41 percent of North Dakota’s durum crop was planted compared with 35 percent the previous week and 10 percent for the five-year average. Durum emergence was estimated at 12 percent compared with 1 percent the previous week and 1 percent for the five-year average.

Cash bids for milling quality durum on May 3 were at $7.25 per bushel n Berthold, N.D., while Dickinson, N.D.’s bid was $7.30.

Canola

Canola futures on the Winnipeg, Manitoba, exchange ended the session $14.60 (Canadian) lower for the week ending May 3. Canola traded lower in all four sessions as technical selling pressure combined with spill-over selling from a lower U.S. soybean complex. Additional selling was tied to a slowdown in crush demand.

As of April 29, 17 percent of North Dakota’s canola crop had been planted compared with 7 percent the previous week and 7 percent for the five-year average. Emergence was estimated at 1 percent compared with none for the previous week and none for the five-year average. Minnesota producers are reporting canola planting progress at 28 percent complete compared with 9 percent the previous week and 17 percent for the five-year average.

Cash canola old crop bids in Velva, N.D., on May 3 were at $29.52 while new crop bids were at $25.32.

Sunflowers

As of April 29, 2 percent of North Dakota’s sunflower crop was planted compared with none the previous week and none for the five-year average.

Soybean oil export sales pace for the week ending April 27 was estimated at 14.9 trillion metric tons, bringing the year-to-date total to 372.9 trillion metric tons, compared with last year’s 1,172.6 trillion metric tons. Cash sunflower old-crop bids in Fargo, N.D., on May 3 were at $27 while new-crop bids were at $26.15.

Grabanski is president of Progressive Ag, a Fargo, N.D.-based hedge brokerage firm. Reach Grabanski at (800) 450-1404.

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