RAY GRABANSKI COLUMN: Corn had a good run, now seeing losses
Wheat The wheat market has been following corn higher during the past few weeks, so with the losses in the corn market this week, it only seemed logical that the wheat market would also drop lower. The corn market has had a good run over the past...
The wheat market has been following corn higher during the past few weeks, so with the losses in the corn market this week, it only seemed logical that the wheat market would also drop lower. The corn market has had a good run over the past few weeks and has been overdue for a setback so to see the past few days of losses is expected. Technically all of the grains put in a weekly down side reversal. This is a bearish sign technically and it should result in further selling. The way the grains performed on June 20, one would expect the funds to continue to be sellers. The market had the appearance that it wanted to trade lower as it opened higher than expected (probably on small trader buying on market break) then tuning lower as the buying slowed and the fund selling kicked in.
The winter wheat harvest has been advancing along nicely and that also added light selling pressure to the market. New crop supplies of winter wheat are coming in and that is adding pressure to the wheat market, or at least limiting the gains. So far yields have been better than expected, but the quality has been less than average. This has helped to limit the losses in the Minneapolis market as end users are needing to buy spring wheat to blend with the winter wheat to increase the quality of the winter wheat. This has helped to stabilize the spring wheat market. Losses were limited by concerns about the dry conditions in Australia and Argentina. There are no big concerns with Australia yet, but another month of semi dry conditions will certainly cut the potential size of the crop.
June 19's USDA export sales report was not friendly to the wheat market as it showed last week's sales pace for wheat at 19.8 million bushels. This brings the year to date wheat export sales pace to 297 million bushels compared to 194.2 million bushels for last year at this time. export inspections report was decent for wheat as it showed last week's shipments at 14.7 million bushels. This brings the year to date wheat shipments pace to 31.4 million bushels compared to 16 million bushels for last.
As of June 22, USDA is estimating the winter wheat harvest pace at 16 percent complete compared to 9 percent last week and 19 percent for the five year average. Eighty-nine percent of the winter wheat has headed compared to 84 percent last week and 95 percent for the five year average. USDA is estimating 2 percent of the spring wheat crop has headed compared to zero for last week and 8 percent for the five year average. The winter wheat crop is now rated at 47 percent good to excellent, 31 percent fair, and 22 percent poor to very poor, unchanged from last week. The cool wet weather has helped the spring wheat crop as it showed an improvement of 4 percent to 67 percent good to excellent, 28 percent fair and 5 percent poor to very poor.
Corn prices formed a weekly downside reversal, running to new all time highs at $7.91 December futures, and then dropping sharply the rest of the week and closing with 10-cent losses. That is a very negative development, and could mean the 25 year highs for corn have been spotted.
We are hearing all kinds of rumors about demand being cut, as ethanol plants are not doing as much business near term, and plants scheduled to be built are being cancelled, and plants scheduled to open are being delayed. Export demand is also slowing, and talk is that USDA is going to open up CRP in some manner; it's just a matter of how they are going to do it. Pro Ag fears we are at the end of our bull market rope, as improving weather is also pointing in the direction of down.
Pro Ag chose to sell 50 percent of 2009 corn, and 50 percent of 2010 corn June 19 as the market appears toppy. With improving weather, slackening demand, and lower government subsides for ethanol we think we are about done with the corn bull market, perhaps for the next 10 to15 years. Now its time to start hedging out more sales other than from the 2008 crop year. You may want to hedge them yourselves, as there might be little pain in hedging and only gain if indeed the market has topped. So rather than pay any elevator to hedge for us (and risk default by the elevator on the contract), we'd rather do it ourselves -- especially if we can take money out of the hedge account and use that money ourselves. (What if these hedges are $2 per bushel ahead by harvest 2008?)
Weekly recommendations: Prices of corn and soybeans have rallied sharply into June 19, hitting multiple year price targets for selling grains (more than $6 corn and more than $15 soybeans). We've been running a sell stop underneath the market during the recent bull market blow off top to try to capture as much of this rally as possible. We hit those sell stops June 19 at $7.65 December 2008 corn and $15.23 November 2008 soybeans so its time to start selling! Therefore, producers should have sold 50 percent of 2009 corn at 6.705 December 2009, sold 50 percent of 2010 corn at 6.61 December 2010 (up to the revenue insurance guarantee you expect to have coverage for, and only on the land already secured for the 2009 and 2010 crop years). Time to sell all cash 2007 corn, and also get priced up to 100 percent of 2008 cash corn.
Soybean prices ran to new highs, with even the July contract pushing to new highs before falling back down. That has turned what looked like a very bullish market prior to this week to a negative technical picture today. This has the look of a double top on weekly and daily charts, with a weekly downside reversal on soybean charts -- all negative signs. The fact that new crop soybeans exceeded old highs easily and July nearby didn't is also negative (bear spreads working), as it indicates near term demand is also slowing.
Fundamentally, weather has also taken a turn for the better, with the past week relatively dry and warm for weather across most of the Corn Belt. That has improved crop conditions considerably from last week, especially in areas outside of flooded Iowa, Illinois, Missouri and Wisconsin. With a warm to normal temperature forecast and normal to above normal precipitation forecast following a pretty dry week this week, the forecast is starting to look favorable again.
Contrast that with the media fascination with higher commodity prices and the flooded images, and we might be getting a picture of a crop that is starting to look much brighter, at the same time that the market is strong. Pro Ag looks at this as a selling opportunity for both speculators and hedgers (speculators to sell with a stop above the old highs).
Prices of corn and soybeans have rallied sharply into yesterday, with Pro Ag hitting multiple year price targets for selling grains (more than $6 corn and more than $15 soybeans). We've been running a sell stop underneath the market during the recent bull market blow off top to try to capture as much of this rally as possible. We hit those sell stops today at $7.65 December 2008 corn and $15.23 November 2008 soybeans so its time to start selling. Therefore, producers should have sold 50 percent of 2009 soybeans at $14.46 November 2009, and sold 50 percent of 2010 soybeans at $14.70 November 2010 (up to the revenue insurance guarantee you expect to buy those years and only on the land already secured for the 2009 and 2010 crop years).
Continue to target $16.50 November 2008 (2.2 times the corn price) to price another 20 percent of 2008 soybeans (up to 100 percent). If any crop year (2009, 2010 or later) hits $7.50 corn futures or $16.50 soybeans, we will price up to our crop insurance revenue guaranteed bushels. Thereafter, on any $1 corn or $2.50 rally in soybeans, buy puts on the remaining percentage of the next crop year (2008).
USDA estimated no shipments of barley last week. This brings the year to date shipments pace for barley to 735,000 bushels compared to 44,000 for the same time last year. Barley exports for last week were estimated at 20,000 metric tons with Japan the only destination. As of June 15, 2 percent of the nations barley has headed compared with zero the week ending June 14 and 9 percent for the five year average. Barley's crop condition rating improved 1 percent to 69 percent good to excellent, 28 percent fair, and 3 percent poor to very poor. This week's weather should have been ideal for crop development for barley and should result in an improvement in crop ratings in Monday afternoon's report.
There were no durum shipments reported for the week of June 12. USDA estimated last week durum export sales pate at 100,000 bushels. This brings the year to date export sales pace for durum to 9 million bushels compared to 8.1 million bushels for last year at this time. Three percent of North Dakota's durum crop is in the boot stage. This compares to 0 last week and 6 percent for the five year average. Thirty-six percent of the states durum crop is in the jointing stage, which compares to 11 percent last week and 28 percent for the five year average. Durum's crop ratings are estimated at 60 percent good to excellent, 39 percent fair, and 1 percent poor to very poor. Just as is the case in barley, the weather should have been ideal for crop development and conditions should show a slight improvement on June 23.
Canola futures on the Winnipeg exchange ended the week lower. Most of the selling pressure came from spill over selling form the lower U.S. soybean complex but some pressure was also due to the lower weekly close in the U.S. crude oil market. It seems that since the renewable fuels talk started, canola has been following crude more than the U.S. soybean complex. This is mainly due to the fact that a significant amount of the canola oil produced is use in the bio fuels industry. Light selling is also due to very close to ideal growing conditions for canola in the Canadian prairies and also good conditions in the U.S. As of June 15, 34 percent of North Dakota's canola crop was in the rosette stage compared to 11 percent last week and 39 percent for the five year average. North Dakota's canola crop rating is now estimated at 62 percent good to excellent, 32 percent fair, and 6 percent poor to very poor. Cash canola bids in Velva were ended Friday down 21 cents per hundredweight to end at $28.50 for old crop and $28.03 for new crop.
As of June 15, 775 of the nations sunflower crop was planted compared to 68 percent for last week and 84 percent for the five year average. Colorado, Kansas and South Dakota are all lagging behind in planting progress while North Dakota is slightly ahead of progress. North Dakota's sunflower crop is rated at 59 percent good to excellent, 37 percent fair, and 4 percent poor to very poor. Cash sunflower bids in Fargo, N.D., were left unchanged June 20 to end the session at $30.60 for old crop while new crop bids ended at $28.60.