Grains Analysis


All eyes are on Friday's USDA monthly crop production supply and demand report. Pre-report estimates are range bound to last month.

Corn ending stocks through the end of the marketing year (August 31, 2012) are estimated at 838 million bushels, down 5 million from last month, and 290 million under a year ago.

Another poll I saw put corn stocks up 2 million, and because the final grain production numbers don't come out until the January 2012 report, traders see a conservative report this week.

Guesses on corn ending stocks range from 712 to 899 million. For report day, anything under the average guess of 838 points to a higher open, but at closing, corn futures could decline if it the number is not significantly less than 838. Prices will definitely plunge if it is far greater than 838 million. If the number is just 3 to 6 million bushels less than that, given slow demand, it won't be generating new buying. However, if the number is nearer to the low end of pre-report guesses, around 712 million (or less), we could close the week sharply higher.

World stocks are projected up slightly to adjust for more world acres seeded. The impact of weather on yields would be appearing in future reports.

Soybean ending stocks are guessed at 213 million bushels, up 18 million from last month and 2 million below a year ago. The range is 195 to 247 million. In order for a rally and hold, the number would have to be less than last month's 195 million; anything above that would suggest that next month's numbers will be higher.

Wheat ending stocks are estimated to come in at 830 million bushels, up 2 million, with a range of guesses from 731 to 867 million. If there's going to be a surprise it could be a sharply lower wheat number if the government decides to lower ending stocks off perception our winter wheat crop is in poor condition and Ukrainian crops are suffering drought conditions. Anything around the average guess is considered ample stocks of world wheat supply.

This report, in general, should be a yawner, with eyes quickly turning to the summit meeting in Europe trying to resolve key country debt issues that has had funds selling grains and other commodities in their portfolios to address failing economics. Should the new week brings talk of an agreement, even temporarily, to resolve these issues and I'd foresee a measurable rally happening regardless of Friday's crop report.

Corn basis March could push back to $6.60 to $6.70 and January beans to the $12.00 area to adjust back in a more favorable grain export environment. Failure of a debt settlement and a slightly negative crop report on Friday could pressure a March corn break to $5.70 and January beans down to $10.75. Should corn or beans pull back to these areas, be a buyer, as they should hold these levels as near-term lows on two issues.

First issue: the early January USDA report will give the final crop production numbers for corn and beans. The fear will be that the government will subtract flooded out spring planted acres from their total for harvested acres. This concept has yet to be addressed. No one will want to be short into that report and speculators will want to buy.

Two: all indications are that drier weather lies ahead in South America as beans continue early emergence and that will garner talk of China turning to the U.S. to overbook beans as a hedge against crop losses in Brazil and Argentina. The next seven days has Argentina generally dry with 50% or less of normal rainfall and Brazil with 52% of its bean acres dry and 48% with average to above-average rainfall. Not an all-out drought, but it's begun the fear factor in trading, with traders buying beans on daily breaks.

Brazil's government, oddly enough, has dropped their bean production estimate for the year about 5%. Seems early for them to do that, as planting is still going on, but they may feel the early acres planted have already suffered.

There is a substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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