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Rally, but negative world news

Ray Grabanski 10/13/2011 @ 8:35am President, Progressive Ag www.progressiveag.com

Grains have rallied recently, with Tuesday's limit up move in corn (40c gains) and large rally in other grains pushing grains up in the recent 7 day period.  That has pushed corn 70c above its lows of the Sept.30 report day, a recovery that was nice and means a lot to the bottom line of corn producers!

Grains struggled yesterday with another USDA report that showed despite a smaller US crop size, US and world ending stocks would continue to rise in wheat and corn.  This is especially true with world stocks, as Ukraine corn and Russian feed grains continue to be revised higher.  This is consistent with Pro Ag research which indicated this was true in August, with very large yields of the FSU countries in spite of what was a drought in 2010.  The huge FSU 2011 crop continues to squash market hopes of wheat and corn, and prices retreated considerably in wheat yesterday given the large supplies worldwide.  US corn ending stocks were 60 mb larger than expected, in spite of production estimates 40 mb LOWER than expected.  That was due in large part to a 3 mmt hike in Ukraine's corn production number and a 1.5 mmt hike in Russia's feed grain production. This is inconsistent with the news early this week that Russia was seeking to restrict exports of feed grains and wheat again this year (which caused the limit up move Tuesday).  

World ending stocks of corn were hiked nearly 6 mmt yesterday to 123.2 mmt, and world ending stocks of wheat were hiked 8 mmt to 202 mmt, well above trader expectations.  This indicates that world stocks of corn and wheat continue to grow in recent reports, loosening the grip of bullish traders on the world's available ending stocks.  World ending stocks of soybeans were hiked less aggressively, only up 0.5 mmt from Sept. to 63 mmt, but were once again opposite the direction of US ending stocks estimates, that were tightened to 160 mb (down 5 mb from Sept.).  So the overall story of yesterday's reports were that IN SPITE of smaller US crops of corn and soybeans (cuts of 400,000 planted acres of corn and yield cuts of 0.3 bu/acre in soybeans to 41.5 bu/acre), world stocks grew more plentiful.  That is a bearish pill to swallow for the bulls today, who instead now must rely on outside markets to propel grains higher. Can the outside market strength push grains higher IN SPITE of larger world supplies?

Corn now has to struggle with the fact that SRW wheat is now priced at a discount to corn per bushel with the relatively larger break in wheat prices yesterday (and you only get 56 lbs. of corn and 60 lbs of wheat per bushel).  This should increase feed use of wheat worldwide, and cause the corn situation to get even more plentiful as the season plays out.  

The recent sharp rally of grains has mostly continued to hold, with corn prices 50c above lows made just 12 days ago, and soybeans also considerably higher.  This recovery may reach all the way to $6.60-$6.70 Dec corn, and to $12.80 Nov. soybeans.  Pro Ag would recommend catch up sales of 2011, 2012, 2013, and 2014 crops at $6.59 Dec corn and $12.69 Nov. soybeans; producers may even advance sales at these levels.  Wheat in particular could pressure corn/feed grain values, as wheat once again is the lowest priced feed grain in the world!

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