Ray Grabanski column: Week closes in sharp rally
Wheat Futures closed higher for the week, with the vast majority of the push coming into the closing bell Feb. 16. News remains limited, as exports continue to be slow and major winter wheat areas have received significant moisture. The late turn...
Futures closed higher for the week, with the vast majority of the push coming into the closing bell Feb. 16. News remains limited, as exports continue to be slow and major winter wheat areas have received significant moisture. The late turnaround appeared to be largely technical, fueled first by stronger corn prices and then on its own merits as it moved through minor resistance levels. Closing prices were impressive, as we saw trade hit the highest mark of a monthlong trading range. Most support will come from an effort by wheat markets to avoid becoming the feed grain of the market and regain some of its typical premium to corn. Minneapolis markets should benefit the most, as they need to maintain their acreage levels going into 2007.
USDA released weekly export data for the week with numbers returning to their disappointing trends. Export inspection data was posted Feb. 12 for the week ending Feb. 8 totaled 13.1 million bushels against expectations for 14 million to 17 million bushels. Sales numbers also were poor, totaling 361,000 metric ton, below expectations for 450,000 to 650,000 metric tons. Our high prices combined with firming dollar values and big competition from ex-Soviet states on the world market is making it difficult to be optimistic that this trend will change.
Last week's performance was the best in wheat for some time, but again, it was reliant on outside support. Most support appears to be from rumors that Southern Plains feeders are adding wheat to feed rations. Wheat is within 50 cents per bushel of the price of feed corn in this area and therefore becomes economical to feed instead of some corn in the rations. This becomes a limit for wheat prices to drop relative to corn as the entire wheat carry-out easily can be fed if this occurs for much time. So wheat prices will need to stay relatively strong to keep from feeding up all the food wheat supply. Since November, wheat prices have drifted lower in nearby months, while corn and beans push to new highs, so these prices have been coming together. Rumors that some cattle feeders bought the entire inventory of wheat at some elevators has been a red flag to wheat buyers that they cannot allow wheat prices to get too cheap or they risk losing available supplies to the feed bunk.
CornCorn futures continued to rally last week as concerns about 2007 production continued to plagued the market. Overall, moves during the day were limited, giving more of grinding tone than the shot higher we saw for most of the fall. Nonetheless, many contracts were able to make technical headway, attracting additional spec buyers into the market place. December new crop contracts closed at new all-time highs and were able to remain above previous resistance levels of $4. Even the old crop March contract finally seemed ready to stay above the $4 mark, although it gained only marginally in comparison to other months. Export sales as well as the release of USDA baseline data provided additional support.
Export sales numbers were positive, although sales numbers were delayed one day because of weather issues. USDA released export inspections Feb. 12. Numbers were relatively neutral but managed to provide minor support. USDA reports inspection of 37.7 million bushels of grain for shipment, within expectations of
34 million to 41 million bushels. This is 4.5 million bushels better than the previous week, with cumulative totals 17 percent ahead of a year ago. More impressive were the sales numbers for the week ending Feb. 8. USDA reported total sales of 1.3 million metric tons, well above trade expectations for 700,000 to 900,000 metric tons. This also is a 50 percent increase from the previous week. Year-to-date totals are 22.8 percent ahead of one year ago.
The market received the biggest news it had in a long time last week with the release of USDA baseline data. In a typical year, this report receives moderate attention at best, as it represents USDA estimates of supply and demand as far as 10 years into the future. This year, however, those views represent a huge impact on markets should be handled for 2007 and 2008.
In this report, ethanol demand is projected to increase two times last year's rate for 2007 to '08, with
3.2 billion bushels projected used for ethanol. That's up
1.05 billion from last year, or about twice the 550 million-bushel expansion in the 2006 to '07 crop year, and even larger than the 1 billion-bushel increase projected by USDA chief economist Keith Collins in his Jan.10 testimony to Congress. So on one hand, USDA is admitting that ethanol development is much faster than anyone expected for the 2007 to '08 crop year. Yet, in the baseline projections the increase for 2008 to '09 ethanol use growth drops to only 500 million bushels, or half the speed of increase for 2007 to '08. It slows further again for 2009 to '10, with only a 200 million-bushel increase (3.9 billion) and slows again for 2010 to '11 to only
100 million bushels (4 billion bushels total). These projections indicate USDA expects a rapid slowing down of the rate of expansion of corn use for ethanol, even after admitting that next year's growth is even larger than they thought it could be.
These numbers should prevent prices from falling much as we move into planting, but do bring up a caution for producers looking past the 2008 crop year. The question then becomes, what is the factor that will slow this market down?
SoybeansFutures closed higher, again supported by the potential loss of acres moving into 2007. In general, news has been limited, but the situation presented by biofuels is unchanged. That was confirmed in USDA's baseline data report. Corn continued to be the highlight of the report, but the gained acres there reflect directly on reduced production plans for soybeans, at least through 2008. There also was some interesting information in that USDA projects that the U.S. will fall well behind South America as a world soybeans exporter by 2010, selling less than 25 percent of the world's supply. Despite this, the next few years will be ruled by the need to at least maintain acreage from 2007, particularly if any weather issues arise this summer.
USDA weekly export numbers were mixed, with inspections positive but sales slipping from recent levels. Inspection numbers were released Feb. 12, with USDA reporting 25.8 million bushels of soybean inspected for shipment. This was just above the high end of trade expectations for 20 million to 24 million bushels. Sales for the week were disappointing, however, with sales of 380,700 metric ton. This was below trade expectations (450,000 to 605,000 metric tons) and represents a 53 percent decrease from the previous week. South American harvest, along with our rallying prices, should slow some of the recent strength in export demand. South America is experiencing minor harvest delays.
Soybeans continue to be an impressive market, but remain reliant on outside support from the drastically changing corn market. Soybeans are not to be left behind, however, and likely will undergo some dramatic changes of their own before its all said and done. Up until the past few years, the U.S. has been the leading world exporter of soybeans and actually relied upon this demand to consume its crop. With USDA's latest estimate, we are looking at a situation where oilseeds are going to have to change and adapt. Does this mean that the biofuels push is going to work its way into soyoil markets? In fact, this was not the case in the baseline projections last week, likely because of cost-prohibitive factors (higher grain prices, technology costs, etc). For this reason, soybean outlook is almost entirely controlled by this summer's weather, as a production problem could virtually erase the current record carry-out. That would leave us with an acreage fight in 2008, and look out for what happens then.
BarleyThe barley market has shown some decent life this past year. Of course, most to the push has been attributed to the strength in the corn market. As the corn market continues to increase, feed barley bids are going to have to increase as well. This could be the year when raising feed barley might make sense. In comparison, malt barley bids will need to improve slightly to even over shadow feed barley. The race for acreage is going to heat up, and with corn and soybean bids rapidly increasing in an attempt to capture as many acres are possible, it is making most of the minor acreage crops nervous as to how many acres they are going to get. Barley is no exception to this. Cash barley bids in Minneapolis have feed barley at $3, while malt bids remain at $4.15.
DurumDurum is not a market that has had much news, even as we look back the past two years. Cash durum bids remain stagnant at $4.80 to $5. And with cash spring wheat bids not fair below, it is making the decision to hold onto durum fairly easy. Durum easily should carry a minimum 50-cent premium over spring wheat, and in many locations, that is not happening. This may be a slower process, but with the sharp decline in stocks in 2006 alone and the expected acreage shift in the coming year, durum looks to have further upside potential.
Dry beansNews in this market remains limited along with all grains this time of year. However, the outlook still is positive, particularly with corn prices providing so much distraction to producers in many areas. Dry bean buyers need to bid for acres if they hope to maintain the supply that they have seen until this point.
Minor oilseedsCanola futures lost $4 (Canadian) this past week with most of the selling tied to weaker-than-expected demand. Supplies of canola are adequate at the current rate of demand, but many traders are thinking that once demand starts to pick up (because of a few biodiesel plants coming online in the next six to nine months), canola bids also will have to increase. Export demand has been only routine, as much of the demand has slowed because of the stronger-than-expected Canadian dollar.
Sunflower old crop cash bids increased slightly, ending at $14.90. New crop NuSun bids also were a dime higher at $16.10. Sunflower bids have been increasing steadily during the past few months, but in most instances are not yet competing with corn at the current prices. Corn likely has yet to attract the necessary acres to meet the demand in the coming year, which is bound to push the competing crops higher as we move toward spring. Sunflower stocks have dwindled during the past year because of the lower production in 2006. With the growing demand for sunflower oil also in the equation, it is likely that sunflowers have to buy an additional half million acres during the 2006 crop year. With all of these factors considered, sunflowers should look to inch higher in the coming months to even maintain the acreage we have seen during the past few years.