Written by Chris Robinson
Corn: March corn settled down 1 ¾ cents at $4.25. CZ14 settled down ½ cent at $4.53 ¾. Corn spiked higher to $4.29 ¾ early and then sold off in sympathy with the wheat and beans the rest of the day. Corn attempted some independent strength, but fresh contract lows in wheat took the sails out of any rally. The managed speculative funds are net short 110,000 contracts of corn. It looked like a little short covering early on, but the trend remains down. Today estimates had the funds selling an additional 4,000 contracts. A settlement in March above 4.50 might spark some short covering but $4.40-$4.50 remains a band of resistance on the charts. Support remains below at the contract low down at $4.18 posted on 12/2/13, just 3 weeks ago. Informa raised its estimate for 2014 production slightly from 91.8 Mil from the previous November production estimate at 91.5 Mil. Brazil’s forecast remains non-threatening, while Argentina remains a topic of conversation for the bulls. Recent heat there has the bulls fired-up talking dryness in subsoil. This is not unusual as we enter the uncertainty of Mother Nature and the growing season. At the end of the day, we will wait for the USDA on January 10th for final production, final carry out along with an update on estimated production in South America. There are only 8 business days left in 2013. Now that the Fed has released its numbers, any remaining active traders will be searching for new stories to fuel price moves. Choppy and volatile holiday trade is to be expected. Hedgers: Friday January 10th the USDA report is on the horizon. Plan accordingly.
Wheat: March wheat settled down 7 cents at $6.12 ¾ which is a fresh contract low. WN14 settled down 5- ¼ cents at $6.22 ¼ which is also a new contract low. This is an 18-month low for wheat on the weekly-nearest-charts. Nothing about this price action can be called bullish. Funds remain short over 70K contracts. Funds sold another 2,000 contracts today. Both the Egyptians and the Iranians purchased wheat from the Black Sea and passed on US wheat. This is partly political but also a function of the fact that our wheat is still expensive relative to the rest of the world. Bottom line, the world is choking on wheat supplies currently and the market price is reflecting that fact. Informa estimate today lowered all wheat acres to 57.9, down just 250K acres from the last estimate; however this is still 1.7 million acres MORE than last year. Overall winter wheat looks to be in great shape. The USDA will release its first estimate of 2014 winter wheat seedlings on the January 10th report. Hedgers: With wheat making fresh 18-month lows it is imperative you get a put in place for unpriced 2014 bushels. Buy the put and hope that the cash market finds footing and rallies back. A test of the $6.00 level is within sight. If that psychologically important level fails, trying to guess the eventual bottom could be an expensive folly.
Soybeans: January Beans settled down 22 ½ cents at $13.24. November beans settled down 4 ½ cents at $11.60 ¼ cents. Once again, SF tried to take out $13.51 and failed. Today’s effort marked the 3rd time in the last 7 trading days that $13.50 was tested and rejected. The weather remains nonthreatening in Brazil on the 10-day forecast, while some weather bulls were trying to tout recent heat and dryness in Argentina. Since it IS summer time in South America, every one turns into a TV meteorologist at this time of the year. While no one can really predict Mother Nature’s intentions; it won’t stop people from trying. For now Informa’s estimate for 2014 at 81.9 million acres was down 1.9 million from November’s estimate, but still 5.4 million acres ABOVE 2013 plantings. The market began its slide when this news hit the market. Managed funds remain long an estimated 160,000 contracts of soybeans. Today’s failure to breach $13.50 once again, followed by the snap lower almost 30 cents from that resistance might be an early sign that the funds are long and wrong. Only time will tell when and if the funds will bail on this, but it will be interesting indeed to see who is going to take the other side of these sales if the funds hit the “GMO” button — Get Me Out. Support below comes at $13. 12 ½, $13.00 and then the 4-month low posted on November 5th at $12.52. Hedgers: No changes in recommendations.
Today the Fed announced a tapering in the amount of bonds they will continue to buy monthly. No longer will they buy 85 Billion a month, but are planning to scale down 10 billion a month to “just” 75 billion a month. The stock market liked the news, rallying from a low today of 15,810 to its high at 16,185 for a 375 point trading range in the December Dow futures. The Cash Dow index posted a new record high at 16,173. While this is good news for your 401K and retirement accounts, it remains to be seen how this will impact commodities. If we see money flow continuing to leave commodities and back into equities; that will impact prices of commodities.
The US dollar rallied today as well, but remained below the key 81.0 level. A rally in the US dollar is typically negative for US commodities because it makes our products more expensive and less competitive on a worldwide basis. A case in point is the 18-month lows in Wheat today. Our wheat is relatively expensive, so the world shops elsewhere.
As risk managers we can’t market in a vacuum. This money flow may end up being as important or even more important as droughts and other supply issues. Now more than ever with crops getting bigger and little to no South American weather worries on the front pages, the boat has tipped towards the bears in the grain markets. How long that continues is an educated guess. Rather than guess with your bottom line as a producer or end user, it’s prudent that you get your business risk on paper and out of the cash market.