Removing 2012 hedges at $14.00
For a long time, Pro Ag has been targeting $14 harvest lows for soybeans (ever since September when beans traded $17.50 or higher), and now this week we've finally hit those support price levels. Our headlines the past few weeks have been all about soybeans and the negative trend that was in place (Soybeans Under Pressure" or "Soybean Crop Likely to Get Bigger". This proved to be great advice and information for hedgers.
Based on that action, Pro Ag has finally removed hedges for the 2012 crop at near the $14 lows, or more accurately would let go of cash soybeans if your basis has improved. For now, we might see a bounce back to the $14.50 Jan. mark, in a recovery type trade. But, clearly we are in a free falling downtrend now until we hit that level of shelf support. It might be a bit early to throw in the towel completely on soybeans and expect a retreat all the way to $10, though, as the SAM crop still needs to produce a good crop to keep prices on the defensive. It might take a reassurance that the SAM crop is indeed going to produce an average or above average crop in order for prices to continue their retreat. That could take a while, at least until the blooming process begins and it is more apparent that soybeans indeed will produce an average or better crop in 2013.
The USDA report was bearish as Pro Ag expected, and that had a lot to do with putting pressure on corn and soybean prices in November (especially soybeans). The report indicated corn production 96 mb larger than expected, with soybeans the most bearish with 80 mb larger than expected production. The soybean yield estimate was above even Pro Ag's estimate at 39.3 bu/acre (vs. Pro Ag at 39 bu), up 1.5 bu/acre from last month which is another large hike. The corn yield estimate was 122.3 bu/acre, up 0.3 bu/acre from last month. Pro Ag notes that ND corn yields are still not high enough, as USDA raised them only 5 bu/acre to 120 bu/acre, and we should have record large yields in 2012 (135 bu/acre or better?
US ending stocks were 12 mb larger than traders expected in corn, 7 mb larger in soybeans, and 38 mb larger in wheat than expected. World ending stocks also were hiked for all 3 major commodities, with wheat +1.2 MMT, corn +.7 MMT, and soybeans +2.4 MMT. Overall, this is not nearly as bad a US crop as was forecast in September, when USDA did what Pro Ag felt was an ill timed reduction in production numbers for both corn and soybeans. As it turns out, USDA's Sept. estimate of 35.3 bu/acre soybeans was way off the mark, with their new numbers all the way to 39.3 bu/acre, and likely to go even higher in the Jan final report.
They've jumped a full 4 bu/acre in the past 2 reports - indicative indeed that USDA was way off in their Sept. report. Pro Ag yield models indicated the Sept. cut was ill advised, and that left lots of trading profits available for those willing to trade the short side of soybeans into November. Prices have retreated about $3 during that time, making it very profitable to be short (consider USDA's Sept. numbers an 'opportunity' to harvest a little bigger crop of profits!).
So, with that harvest about over now, after hitting our price targets for harvest lows of soybeans at $14, it might be time to liquidate short speculative positions, and perhaps even liquidate short futures protecting any still stored grain. However, once basis gets strong, there is little incentive to store corn or soybeans in 2012/13, with a mostly inverse market suggesting storage might be a losing proposition.
US winter wheat crops remain in poor shape, rated only 36% good/excellent this week, down another 3% from last week. This is a very poor start to the US wheat crop, and indeed might serve to support prices as we trade this winter. But dormancy will soon ensue, and that will be a non-issue again until next spring. Perhaps more important is South American (SAM) weather, with northern areas getting needed rain and southern areas dry weather recently that is greatly improving prospects there. Overall, we might yet get an above average crop if the ideal weather continues in SAM. That is also pressuring prices.
We've hit our fall harvest lows for soybeans at $14, but still are holding on to short corn positions for our target lows of near $6.735 Dec futures. Will soybeans trend up to $14.50 Jan in a bounce??? Or will corn drop to $6.735 harvest lows, and drag beans down with it??? These are the questions of the day for now!
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