On Friday, Jan. 11, USDA released its latest, and widely anticipated supply/demand report.
With final acreage figures, updated and final production figures, quarterly stocks and demand changes, plus winter wheat seeding estimates; this report promised to be a shocker for the trade. Price action was limited prior to the report's release with price action limited to minor short-covering. Following the report, the market has rebounded nicely.
Ahead of the report, we mentioned many times the report had the potential to change the fundamental and technical trend of the market. Both the fundamentals and technicals were bearish for prices with slow demand trends and increasing supplies telling traders to sell rallies. Now that the report information is public, what do we expect the trade will focus on? The most surprising and the most important figures released in the report were no doubt the quarterly stocks.
Quarterly stocks for corn were surprisingly low with the first quarter feed/residual use rate calculated at 2.073 billion bushels, the largest 1st quarter total since 2009. Dec. 1 U.S. corn stocks at only 8.030 bb is a very large 1.617 mb below a year ago and argues for demand rationing. Traders had believed there was no need to ration supplies as exports have been horrible this marketing year so far. The lack of demand will catch up to the U.S. eventually, but for the rest of the winter, the market is going to anticipate a need to rally to ration the demand. This will leave corn in a bullish position, especially with the COT setup.
Soybeans did not have a bullish report and once supplies from South America hit the open market, prices are going to have a difficult time in sustaining rallies until our springtime.
Wheat had a nice report as USDA reported smaller than expected winter wheat seedings. The smaller seedings figure will be bullish to wheat this spring as it places more pressure on the growing season as wheat conditions are already the worst in 25 years and acreage totals are now smaller than expected. Once wheat breaks dormancy, price movement looks to be very volatile.
Overall the report should lead to corn prices breaking their downtrend and trying to move higher. It tells trades not to sell every rally any longer and look for buying opportunities going into the spring where weather conditions will make price movements very volatile.
I don't see any selling or hedging opportunities for producers given this information, the change in the fundamental and technical trends, and the COT report. I think winter lows are being carved and better opportunities lie ahead for producers.
Corn closed the week 28 1/2 cents higher. Last week, private exporters a 102,000 mts corn sale to an unknown destination. In the weekly export sales report, corn sales shows 0.0 mb slated for 2012/13. This is below the 18.6 mb that is needed to stay on pace with USDA forecasts of 1.15 bb. In the January supply/demand report, USDA reported U.S. corn for grain production is estimated at 10.8 billion bushels, up 1 percent from the Nov. 1 forecast but 13 percent below 2011. The average yield in the United States is estimated at 123.4 bushels per acre. This is up 1.1 bushels from the November forecast but 23.8 bushels below the 2011 average yield of 147.2. Area harvested for grain is estimated at 87.4 million acres, down slightly from the November forecast but up 4 percent from 2011.
STRATEGY & OUTLOOK
Producers are now 80 percent of 2012/13 crop and are also 40 percent sold of the 2013/14 crop. Re-owned 50 percent of the 2012/13 corn crop with July calls.
Soybeans closed the week 6 cents higher from last week. Last week, private exporters announced a sale of 320,000 mts of US soybeans to China; 281,500 mts of soybeans to an unknown origin; and a total of 246,000 mts of optional origin soybeans to China. In the weekly export sales report, soybean sales were 14.9 mb, this is above the 6.0 mb that is needed to stay on pace with the current USDA forecast of 1.345 bb. In the monthly supply/demand report, USDA reported US soybean production in 2012 totaled 3.01 billion bushels, up 1 percent from the November 1 forecast but down 3 percent from 2011. United States production is the seventh largest on record. The average yield per acre is estimated at 39.6 bushels, 0.3 bushel above the November 1 forecast but 2.3 bushels below last year's yield. Harvested area is up 3 percent from 2011 to 76.1 million acres and is the third highest on record.
STRATEGY & OUTLOOK
Producers are 80 percent sold of the 2012/13 production and are 40 percent sold of 2013/14. Re-own 50 percent of 2012/13 production with July soybean calls if futures hit $13.35.
For the week, Chicago wheat closed 7 1/2 cents higher; Kansas City wheat 2 1/2 cents higher and Minneapolis wheat 5 1/2 cents higher. Last week, Egypt purchased 115,000 mts of US/Canadian wheat. In the weekly export sales report, wheat sales were 8.7 mb, below the 15.9 mb needed each week to reach USDA's forecast of 1.05 bb. In the monthly supply/demand report, Winter wheat: Planted area for harvest in 2013 is estimated at 41.8 million acres, up 1 percent from 2012 and 3 percent above 2011. Seeding began last August but by the middle of September was behind the 5-year average as producers waited for improved soil moisture levels. However, by the end of October, seeding had progressed ahead of last year and the 5-year average. More acres were seeded for this year because of the early row crop harvest and higher prices. Hard Red Winter (HRW) wheat seeded area is about 29.1 million acres, down 2 percent from 2012. Acreage changes from last year are mixed across the growing region. Growers in Nebraska, Oklahoma, and Texas planted significantly more acres this year while large acreage decreases occurred in Colorado, Kansas, Montana and the Dakotas. Widespread drought conditions and lack of moisture continues to be a concern across much of the HRW growing area.
STRATEGY & OUTLOOK
KC producers are 80 percent sold of the 2012/13 production. Producers are 50 percent sold of 2013/14 production.. MW wheat producers are 80 percent sold of 2012/13 production. Producers are 50 percent sold of 2013/14 production.
Live cattle ended the week $2.35 lower while feeder cattle ended $4.87 lower. Last week, cash trade developed in the South at $125.00, $2.00 lower compared with a week ago. In Nebraska, trade developed at $203, $4 lower when compared with last week. Futures closed lower as the market was already holding a large premium over the cash trade and with lower cash trade last week, futures were ripe for a correction. Tight supplies of cattle should limit the downside and prevent a collapse in prices over the next two months. Winter weather conditions are just starting to effect the pricing environment and seasonal highs are not normally scored until March. This leaves the market to trade in a higher range until long term highs are scored this spring.
STRATEGY & OUTLOOK
Producers currently have no hedges in place. Feed costs should be covered in corn futures/options or cash product through July, 2013 when prices pulled back to support.
Lean hogs closed the week $2.02 lower. The average Iowa-Minnesota hog weight for last week was estimated at 276.3 lbs versus 275.8 lbs previous week and 278.0 lbs last year. Lean hog futures maybe nearing the end of their bullish run. A run that started the first week of September and rallied the market nearly $20/cwt is now attracting a lot of hedging business from hog producers as well as commercial hedging interests. Another rally attempt may unfold into the summer months, but in the meantime, it is likely prices will fall under the weight of this selling interest. Funds will likely be caught on the wrong side of this trade and once they start selling, prices are likely to free fall.
STRATEGY & OUTLOOK
Producers have sold 50 percent of February at $85.85.and 50 percent of April at $91.50. Sell 50 percent of June at $101.25. Feed costs should be covered in corn futures/options or cash product through December, 2012.
From Reuters News, Bloomberg News, Dow Jones Newswires and Red River Farm Network.
(Bloomberg) - Monsanto advanced a record 18 projects in its annual review of the research and development pipeline, including DroughtGard corn, developed with BASF AG. Commercial sales of DroughtGard, which boosts yields in low-water conditions, will start this year, targeting 10 million acres from the Dakotas to Kansas, Chief Technology Officer Robb Fraley said on the call.
A lawsuit alleging the misuse of beef checkoff funds is in limbo. A Colorado Springs producer and processor, Michael Callicrate, filed the lawsuit on behalf of the Organization for Competitive Markets. The lawsuit seeks a permanent injunction against USDA and the Cattlemen's Beef Board, claiming beef checkoff funds are used primarily to support large companies, putting small cattle operations at a disadvantage. Last month, Callicrate's attorney asked to withdraw from the case, claiming conflict of interest. Callicrate objected, saying he would be unable to find replacement counsel of the same quality on affordable financial terms. The judge has granted the lawyers' request to withdraw. The lawsuit, itself, is still in the courts.
China will have a bigger influence than the U.S. or Europe over the economies of developing nations as the world's largest exporter increases its contribution to global growth, according to HSBC Holdings Plc. "We are moving away from a U.S.- or Europe-led world to a world led by China," Stephen King, HSBC's chief economist, wrote in an Emerging Markets Index report published. "China will ake its biggest-ever contribution to global growth in 2014," King said, in what he termed a "great rotation." China's economic growth is set to accelerate to 8.6 percent this year, from 7.8 percent in 2012, King said, a rate of growth that will benefit neighboring countries and commodities-rich nations. China's expansion compares with a 5.4 percent growth forecast for the emerging world as a whole, according to HSBC.
(Bloomberg) - Warren Buffett, the billionaire investor who oversees stakes in some of the largest U.S. banks, said the nation's lenders have rebuilt capital to the point where they no longer pose a threat to the economy. "The banks will not get this country in trouble, I guarantee it," Buffett, chairman and chief executive officer of Omaha, Neb.-based Berkshire Hathaway Inc., said in a phone interview last week. "The capital ratios are huge, the excesses on the asset side have been largely cleared out."
Cargill reported net earnings of $409 million in the fiscal 2013 second quarter ended Nov. 30, compared with $100 million in the same period a year ago. In the first six months, earnings totaled $1.38 billion compared with $336 million in the prior year. Second-quarter revenues rose 6 percent to $35.2 billion, which brought first-half revenues to $69 billion. "Cargill posted a solid second quarter, with earnings balanced and diversified across the breadth of the company," said Greg Page, Cargill chairman and chief executive officer. "The steps we've taken over the past months to focus attention on what our customers value most, change how we work, instill more cost discipline and invest in growth are paying off in the current year. Most importantly, these changes are key to delivering sustainable growth year in and year out."
(Bloomberg) - Russia harvested a record 7.9 million metric tons of corn in the 2012/2013 season, the Institute for Agriculture Market Studies said, citing preliminary government data. The country also exported corn at a record pace in the first half of the seson, with deliveries through December exceeding 900,000 tons, the institute also known as IKAR, said on its website.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Brian can frequently be heard on radio stations across the country including The Linder Farm Network and the Red River Farm Network. Brian can also be heard daily on the DTN doing his own grain market commentary program as well as the Minneapolis Grain Exchange marketing hotline and the University of Illinois commodity wrap up program. Brian also writes several newsletters that are published throughout the Plains and the Midwest, covering Iowa, Minnesota, North and South Dakota, Nebraska, Kansas, Montana, Wyoming and Idaho. Brian has been quoted in the Wall Street Journal, Bloomberg, Reuters and Dow Jones newswires and U.S. Farm Report.
Midwest Market Solutions is the leading edge in commodity marketing and trading and is widely recognized as one of the top marketing advisory and brokerage firms in America. Midwest Market Solutions was established in March 2002 and is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O'Brien. The firm specializes in individual trading strategies for the investor, personalized marketing programs for individual farm operations as well as full-service and discount broker services. The firm is located in Springfield, Mo., with a branch office in Yankton, S.D., and is committed to providing clients with the best information and service possible.
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