Outlook from the CBOT Floor for May 7, 2012
Coming back from the weekend traders see a changed geopolitical climate. The French socialist election caused tremors through all markets with a distinct bearish tone noted in the commodity sector as the Euro tanked against the USD. Some of the initial negative sentiment has eased with the Euro and crude recovering from overnight lows into the morning sessions following the knee jerk. The trade will be lower early but there is growing interest in old crop corn to move higher after May held a positive tone overnight. Corn basis is the story this week heading into WASDE on Thursday with central IL and the Gulf on fire. Central IL is trading 50 plus over for spot and nothing is moving. The CK-N spread showed exceptional strength overnight holding Friday’s amazing gains. This spread has moved from a 10-inverse to a near 50-inverse in the past week. The basis said it was going to happen but this is way out of hand in my opinion. Old crop interest from Ethanol, domestic feed and huge exports created a perfect storm that has yet to see a conclusion. Further out spreads continue to promote a bullish sentiment as well with CN-Z trading back out to $1.00. The sky is the limit for this spread right now with old crop stocks a serious question. As mentioned on Friday, with all the recent demand how can the USDA justify an old crop stocks number at 801 million? Ethanol is underestimated along with exports, I think something has to give. Couple this to a shockingly small long 50K fund position and corn is the sleeping dog no one from the consumptive side wants to kick. Corn could easily approach 2011 highs with any early domestic problem that right now is not present. The Russian and Chinese production is in bigger question along with a possible problem with Safrinha corn in Brazil. These are the regions that offer support for a long term corn problem but it remains very early in all production cycles.
Looking at beans, SN-X is the feature this week after folding a bit last week. The trade is show a bit of strength on Friday but there is less incentive to own this as compared with corn right now. Bean basis remains firm but is fading as compared with corn. The bean fund position holds a staggering long 223K while meal holds a long 100K. Bean oil is long a meager 3K. At this point of the season, would much rather be long corn knowing the winter wheat crop is maturing very quickly. This portends to more double crop beans with a rumored 7 million acres possible for beans this year. If a number like this is true, the US 12/13 balance sheet is way off of current USDA estimates. Informa stating on Friday bean acreage will be a whopping 75.82 million versus the current USDA estimate of 73.9 million. A significant difference but it only equates to +/- 80 million bushels. What if Doug Jackson is correct and we are looking at a negative carryout for 12/13? 80 million bushels is not enough to cover his gap so even a 76 million acreage number is not all that bearish new crop beans.