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Grains get shellacked

09/30/2011 @ 8:46pm

Grain markets got crushed this week, accentuating a bear move that has already been brutal. For the last couple of weeks, it’s been wave after wave of fund liquidation as the desire to move to the sidelines and into cash is much higher than taking on any more risk in this very volatile and uncertain market environment. 

Friday saw grain prices get shellacked on bearish crop reports and more liquidation as traders rebalanced their accounts before the end of the month and quarter. Large losses in equities are forcing more selling in commodities, and it’s become a vicious cycle. 

USDA’s stocks report showed wheat and corn stocks much higher than expected. At 2.15 billion bushels, wheat stocks were 6% higher than estimates, and corn was 17% higher at 1.128 billion bushels. All wheat production was 2.008 billion bushels, 2% less than expected. Winter wheat was generally in line with expectations at 1.494 billion bushels, while spring wheat was 6% lower at 462 million bushels. Durum production was about 4% less than expected at 52 million bushels.

Spring wheat plantings were lowered again by 1.226 million acres, a 12% drop from the June estimate. North Dakota saw another drop of 700,000 acres, with Montana acreage down 550,000. North Dakota also saw 250,000 fewer durum acres with Montana down 80,000 from the June report.

Wheat has a host of bearish fundamentals that have pressed on the market for the last few months. The difficult spring wheat plantings and the poor hard red winter wheat crop from the southern plains offered some limited price support this summer, but the large world production and stocks situation has kept prices decidedly bearish.

The export competition is very intense and will likely remain that way for the rest of the marketing year. Russia has been the major player in the world export market, with aggressive offers since they removed their embargo this summer. The US hasn’t even bothered to make offers to Egyptian tenders for the last few weeks, knowing that we won’t even be close to Russia’s offers.

That said, Russia has already exported half of their projections. They apparently have already procured most of the wheat that is close to the ports, and are having to move further inland. This could quickly push up their offered export prices and possibly slow down their exports. Possibly. 

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