A Rally Day

06/19/2014 @ 6:14pm

It was a rare day today (Thursday) with all three major ag commodities finishing the day higher. With the recent move down, of course, it is natural to see the occasional higher day. What is going on?


Although the heavy rain has been falling since last weekend, it seems the market is finally reacting as the second or third round of rain moves through the Midwest. The rain has been the heaviest in southeast South Dakota, much of Minnesota, and northern Iowa. It’s hard to quantify yield losses based on too much rain, but the market may feel the need to add a little risk premium. 


For the corn, there is an added bullish nugget. Weekly ethanol production numbers released Wednesday showed a record production of 972,000 barrels per day. The previous high was in December of 2011, during a strong month of production as the blender tax credit was about to expire. 


The corn market did not really respond to the number yesterday, but it reinforced analysts’ views that ethanol production in the supply/demand tables needs to be increased to 5.075 to 5.100 billion bushels. The strong profitability of ethanol production is driving this recent wave of strong production numbers. This one may have been just a little too much for the ethanol market, with ethanol futures dropping 10 cents a gallon yesterday. 


Exports this morning seemed uninteresting — corn sales were small and wheat sales were so-so. Bean sales as usual were “too high” for old crop and small for new crop. Traders have grown weary of the tight old-crop story and are now more comfortable with the thought that the 2013 soybean crop is probably larger than the USDA estimated in January.

 

Otherwise, the market seems to be pausing before fully considering the estimates and potential implications of the upcoming June 30 reports — acreage and stocks. Next week, the focus will intensify with prereport estimates, and possible last-minute market gyrations. 


The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation. 

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