Weekly Market Analysis with Miller Risk Management


Grain markets had an interesting week with soybeans resuming the strength positions while corn and wheat floundered.  Early attempts at rallies by corn following last week’s USDA report were beaten back by heavy producer sales, reminding us that even though carryout projections are lower, the fact that U.S. producers are far less priced than normal continues to weight on markets.  At the same time, wheat, while ending lower saw big swings in both directions and for all that, didn’t seem to accomplish much.  There’s probably a variety of reasons for this that I’ll cover below but much of it is simply due to a severe oversold condition.  Soybeans were encouraged by ongoing old crop sales and unexpectedly large exports and Dec crush.  That said, the time frame for rallies is probably somewhat limited as South American harvest is approaching and private yield estimates continue to climb.
In terms of outside markets, the Dow recovered from a severe dip on Monday sparked by a disappointing jobs report on Friday and closed the week consistent with pre-report levels.  Traders there have moved on to earnings reports and other indicators of economic health.  The ECB released a statement saying that they will maintain an “accommodative policy” as long as possible.  That would seem to be more of a warning than an encouragement given that statement by an ECB official just days before that saying that inflation levels are likely to dip again before they get better.  None of this is new; as we’ve said with the U.S. economic recovery, bottoms are rarely smooth.
After last week’s dip, old crop soybeans became the darling of the market once again.  USDA’s daily reporting service was active with sales announcements followed by a weekly export sales number that was well ahead of expectations.  This comes on top of the fact that we’ve already met USDA’s export sales projection for the year.  Now, there will be some cancellations as we move through the year but seasonally, that trend usually starts to ramp up about now and so far, there’s no sign of slowing.  NOPA crush estimates for Dec further underscored strong demand as the released showed a monthly crush last month of 165.4 mbu.  That amount sets a new record for December and was near the high end of expectations.  So as many soybeans as the U.S. raised, demand is strong.  That strength however does two things: 1) raises production plans for next year and 2) raises expectations as to what demand “should” be.
As for South America, early week forecasts were also able to spark rallies as projections for some areas, especially Argentina, looked hot and dry.  This was more of a problem due to previous dryness reducing soil moisture as heat and dryness for that area is pretty typical about now (equivalent to the end of July). By midweek there was some moderation in those forecasts and by Friday forecasts had moved to at least include moisture although there was debate surrounding the amount.  Some models showed as much as 3” of rain moving across Argentina.  The private forecaster we work with, T-Storm Weather, believes the amount will be closer to an inch.  In any event, there should be some rains.  Brazil remains in very good condition and has begun early harvest with yield reports between 45-52 bu/ac in Mato Grosso, there major producer.  Agroconsult, a Brazilian analytical firm released revised production estimates this week to 91.6 mmt, compared to their previous estimate of 90.7 mmt.  Brazil’s crush association raised their estimate to 87.6 mmt compared to 86.6 mmt.  Their estimate remains well below everyone else’s.  Again, it’s not so much the absolute number that the market will worry about right now as everyone’s varies, but the direction of estimates and that is solidly higher.
U.S. weekly export inspection numbers on Monday totaled 59.4 mbu which is very good and was at the high end of expectations.  Sales on Thursday were the really surprise though, coming in at 1.227 mmt (701.5 mmt of old crop) and well above the high estimate of 1.02 mmt.  Total commitments stand at 1.523 bbu while USDA is projecting a year end total of 1.495 bbu, so we could now safely endure some cancellations without much change to the balance sheet.  More likely, USDA will be forced to raise their export number at some point.  Soybean meal sales are also ahead (although not to the same extent).
Corn markets started the week off strong, benefiting from last Friday’s USDA report.  In fact, prices were able to retrace to test the previous high at $4.35 and close above the 50 day moving average of 4 days before once again slipping back below it.  That move above the 50 day moving average was the first time since September we had even made and approach close to that resistance line, so its breach was significant.  Unfortunately, as friendly as the drop in carryout projections were, it’s not as helpful if a large percentage of those bushels have remained unpriced and that’s the case this year.  Starting with Friday’s rally, every effort to break back above the previous high was beaten back by reports of heavy producers selling.
The January Quarterly Grain Stocks underscored this.  Obviously the numbers in storage were higher due to the larger crop, but on farm stocks were up 39% while off farm storage stocks were up only 17%.  Now, you can’t assume that all the on farm stocks are unpriced.  They aren’t, some are set for deferred delivery and being it was December when the survey was taken, its normal for a larger portion of grain to be sitting on farm.  However, these numbers combined with farmer survey’s and anecdotal evidence create a very concerning scenario for old crop prices, especially since carry levels to July have deteriorated as well.  For those with remaining old crop bushels, please call and we can come up with a plan to get the remaining bushels priced.
Export inspection numbers this week were moderate at 20.9 mbu, but below trade expectations.  Export sales were sound but with a couple footnote announcements that I’d like to discuss.  Total sales were the week were strong at 812k mt.  This was well above expectations and well above the pace we’ve seen in the past month or six weeks.  The one note I’d like to make was a cancellation of 170k mt by China which is concerning given their ongoing issues.  This was an announced cancellation meaning shipment had not yet taken place.  New buyers also more than made up the cancelled amount and totals were strong.  I think we just need to ask in the back of our minds why?  Every marketing year has cancellations and one move isn’t anywhere near the end of the market but given our ongoing issues with China I think it’s wise to be aware of the situation and be cautious of ongoing issues.  The country also rejected another DDG cargo originated out of the U.S. this week which could again push U.S. truck and rail markets lower.
As many down days as wheat has seen in the past months, this week was interesting for this volatility.  Mnpls and KC both posted double digits gains and losses at various times over the week, ending with very small losses on the week.  The market appears to be torn over a variety of factors, but in the end the heavy global stocks are likely to win out.
The week started off torn with analysts waking up Monday to an announcement that Argentina’s government will be authorizing 1.5 mmt of wheat exports out of the country from this year’s harvest.  The first 500,000 mt have already been authorized with the additional amounts looked at on a month to month basis.  This is the first time in a year or so that the country will be exporting wheat.  Their lack of participation has allowed two things: 1. The U.S. to sell massive amounts to Brazil that we general don’t see and 2.  Reminded the world of their poor crop conditions.  Now Argentina is “sixth man off the bench” so to speak in terms of wheat exports and so their re-entry isn’t the “be all end all,” but it will cut in to U.S. exports to an extent, especially to Brazil.  It’s also a reminder that their wheat crop is no longer a disaster.  That bearishness was offset by a small tender out of Egypt for U.S. wheat.
That hardly seems like a balance of news does it?  In terms of sheer balance sheet numbers, its not.  The friendliness of the Egyptian tender of 55k mt was more political as it represents the first time in 11 months that Egypt’s GASC buying authority has gone for U.S. wheat, however small.  It also flew in the face of rumors that the 565k mt tender that Egypt issued last week would end their buying into April.  They issued another tender on Thursday (results yet unknown), so I think we can safely say they will continue looking for wheat.  From GASC’s standpoint, wheat is cheap and they need to feed their people.  Egypts political instability the past few years has been horrendous and nothing adds to unrest more than hungry people who can’t feed their families.  Any demand for U.S. wheat is likely to benefit SRW markets, not hard wheat.
For growers in the Northern Plains, basis levels have been volatile, strong and extremely varied.  For a few months wheat shipments have been on minimal amounts as the U.S. focused on pushing out soybeans and corn through the gulf instead of SRW and soybeans out of the PNW with minimal amounts of HRS.  That’s changing of the PNW as Canada’s large crop has plugged up rail traffic and elevators.  Their record crop has blown through the levels their infrastructure was designed to handle and the delays are, at least for the time being, benefitting U.S. growers.  The delays will take time to clear up and it will likely be well into spring and perhaps summer before regular shipping patterns resume.  We also have to remember that these burdensome supplies will slip into next year’s production
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