Market Analysis with Miller Risk Management


Grain markets saw several reports this week  between the normal weekly export numbers, USDA’s monthly WASDE data, the annual Ag Baseline report, and Brazil’s CONAB data (similar to our USDA).  To simplify matters, I’ve left last week’s expectations table in place for the WASDE report and filled in the actual numbers in bold:

Item Actual Avg. Estimate Range January
U.S. Corn C/O  1.481 bbu 1.620 1.570-1.748 1.631
U.S. Soybn C/O  150 mbu 145 130-164 150
U.S. Wheat C/O  558 mbu 606 574-653 608
World C C/O  157.3 mmt 159.85 158.00-163.20 160.23
World S C/O  73 mmt 72.39 71.00-73.33 72.33
World W C/O 183.7 mmt 185.33 183.20-186.00 185.40
Brazil C  70 mmt 70.12 66.10-72.00 70.00
Brazil S  90 mmt 89.94 89.00-93.00 89.00
Arg. C  24 mmt 24.02 22.00-25.00 25.00
Arg. S  54 mmt 54.08 52.70-55.00 54.50

Because of the slew of information this week, I’m going to take a different approach to the comments, addressing the information by report and then by commodity using bullet points instead of written analysis:
WASDE Report

  • U.S. Carryout was left unchanged, bearish relative to trade expectations although 150 mbu is still a tight carryout historically.  There is, and will continue to be, some argument as to how USDA arrived at these numbers
    • USDA reduced “residual” stocks by 10 mbu, which is widely used as a fudge factor.  Remember last week’s comments we said this was a possibility, but quite unusual in a non-quarterly stocks month. They also increased imports by 5 mbu for a net gain in supply of 15 mbu  that was used to offset a 15 mbu increase in exports
    • Even with that increase, exports are still ahead of USDA projections.  Unless we see net cancellations the second half of the marketing year, which is not likely, USDA will be making further adjustments lower.  Postponing those adjustments doesn’t change the fact that old crop supplies are tight.
    • Brazilian and Argentinean production numbers were right in line with estimates. World carryout remains very high, and increasing.
      • From that perspective, the new crop soybeans prices are going to be limited in their rallying abilities.
      • Futures markets can, at least in the short term, be very geographically short sighted, but right now, those are the times when we need to take advantage of those rallies as pricing opportunities
      • CONAB numbers out of Brazil reduced soybean production slightly, but remain above USDA projections.


  • U.S. Carryout was reduced much more than expected, to 1.481 bbu.  The reduction was made due to the quicker than expected pace of exports year to date (an increase of 150 mbu)
    • Reduction is “friendly” at least from the stand point that there are less bushels than before.  Still U.S. stocks to use ratio for 2013/2014 crop is 11.1%, which is pretty much right in the middle of numbers from the past 25 years.
    • Ethanol production year to date has been strong, but the past month to six weeks have slowed on margin compression with stocks building as gasoline demand dwindled.  Too early to make an adjustment, but an area to watch
    • World S&D numbers were slightly friendly as well, with a reduction from last month and coming in below trade expectations. Remember that World numbers do not focus on solely corn but all coarse grains.
      • Brazilian corn production was not reduced, which could be argued as an adjustment that will  need to be made in the future.  However, we feel this weeks’ round of showers will prevent too many second crop corn acres from being lost.  Also, even if they were, Brazil’s second corn crop is a small part of total world production
      • Argentina’s Buenos Aires Exchange cut their production number to 23.5 mmt late this week, but I personally don’t see this as much of an issue.  The number is fairly consistent with USDA’s 24.00 mmt
      • In other news, Strategie Grains (EU Analysis) slightly increased their EU corn production number for 2014/2015, which is a trend that will need to be watched.  Ukraine is NOT included in EU production numbers, but has big potential to become a competitor in feed grains in the coming years.


  • U.S. Wheat Carryout was some of the best news we’ve had for wheat in some time.  However, it’s friendliness could be short lived
    • USDA increased U.S. imports by HRS by 10 mbu to account for slow Canadian deliveries to the PNW being pushed south to the U.S.
    • USDA raised Food use by 10 mbu due to higher flour usage and then increased exports by 50 mbu for the same reason they increased imports: Canadian logistical problems
    • The rally of the past month can be directly attributed to the fact that Canada simply can’t move their grain where it needs to be.  Japan in particular has switched destination due to the delays. There is no doubt this has and will continue to benefit US markets. However, and this is a big however, CANADIAN WHEAT HAS NOT DISAPPEARED! It is simply delayed.  Long-term, this likely only lengthens the amount of time that wheat will remain relatively low priced
    • Durum wheat is the one category that did not benefit from this news, but those markets are relatively set as to who is buying what and how much, so not a big surprise.
    • U.S. Stocks to Use ratios are improving.  Too early to call them friendly.  We have worked our way down to 22.7%, which is MUCH better than the 37% or so of four or five years ago.  HRS wheat as a category is somewhat higher than that, with HRW wheat lower
    • World Wheat numbers were along the same lines as corn, constructive because they were lower.  Still, numbers are huge and no one’s on the verge of getting concerned.  Because of that, I’ll skip some of the nitty gritty and suffice it to say:
      •  Reductions of various sizes (none huge) were made to Argentina’s beginning stocks and production, Russia’s carry-in, and Kazak production.
      •  Australian exports were reduced slightly
      • Ukrainian and Brazilian production were tweaked higher, but not enough to offset the early changes.

So a lot of information, but it can be summed up by saying that soybeans are likely to see old crop carryout reductions in the future but the massive global supplies will keep new crop in check.  Corn numbers were decent from the angle they shrunk, but remain unconcerning in their size.  Globally, production is in much the same situation.  There is still far too much wheat around the globe, but delays from our main competitors are opening a window of opportunity for U.S. wheat that will need to be taken advantage of.
Technically speaking, soybeans had the most impressive week, as March broke above resistance at $13.40 and spent a few days there before fading and closing lower on Friday.  Tuesday’s trade will be telling, as markets will need to reject this move lower quickly if they hope to continue moving higher in the short term.  Otherwise, the next resistance level will be the high set back in early Sept at $13.77.
While producers should be sold out of 2013 crop, a basis discussion is probably appropriate given recent conditions.  Basis levels through the U.S., but in particular the Northern Plains, have moved lower.  North Dakota and Western Minnesota are likely to be the most susceptible to problems because in addition to heavier grain flow due to rallies, logistical issues are becoming a huge burden.  Railroad problems are severe right now, and in fact the BNSF, is, for the most part, reported to be around 3 weeks behind and building.  There’s combination of issues that led up to this, but in short, I don’t believe things will really show much, if any, improvement until spring.  Even then, trains will reduce delays, but a week or 10 days late may become standard.  Weather is aggravating these issues, but oil traffic is the big problem.  Grain freight rates are simply not competitive when looked at from the railroads’ point of view.  There simply is not “enough”: not enough track, not enough cars, not enough engines, and not enough labor to move everything that needs to move.  Government projections indicate that by the end of the year, the ND oil production will continue to increase, but in addition, nearly 90% will be shipped on rail compared to only 70% right now.  In short, we have a problem.
From that standpoint, basis levels should “improve” in March but improving from what level is the question that needs to be asked.  Those who have set delivery for this summer should continue watching basis levels, but be ready to set levels sooner rather than later.