Grain Market Report: 27Jan2011

Tanner Sheahan
CPS Tangent

Here are the market reports for the last couple days.  Wheat is strong right now!  Portland prices in Dan's report today range from $8.40-$8.55 from now through May with July pricing at $8.20.  Here are the summaries from the last couple days.

Export sales keep running strong. The US sold 11.5 myn mt of beans to China on the Chinese visit. World prices for food are not done rising. 1 gov’t (Yemen) has already paid the price. Other countries have taken notice (Algeria booked a huge sum of wheat). One thing of concern is what is ‘necessary’ vs. trying to build something of a ‘cushion’ of stocks. Price of rice in Indonesia is up 30% vs. lyr. Again, we had a series of weather events that struck primary production areas and we have seen world stocks go from ‘huge’ to ‘worrisome’. In fact the vast majority of milling wheat is now in the US.
Informa came out with their corn acreage estimates: 90.9 myn acres. So what’s that mean? Well if we pencil whip it, heres how the numbers shake out: 90.9 myn acres minus the abandonment (usually about 8.5%) leaves us with 83.1 myn harvested acres. We have to use something for yield, so let’s use last year’s 153 bpa. Gives us a production of 12.7 byn bu plus our est c/o of 745 myn bu leaves us with 13.46 byn bu supply. IF usage is unch’d at 13.43 byn bu…ok you can see the problem…that only leaves 30 myn bu. SOMETHING must change for c/o into 2012. What/ where are the biggest changes likely to come? Weather/ production is always exciting to predict. So are politics, but a review of the ethanol blenders credits/ subsidies (due to expire 12/31/11) is VERY likely. IF subsidies are cut/ eliminated and we see a 20% reduction of corn used for ethanol that frees up something like 1 byn bu….get familiar with these numbers, we will be working with them for the next 8+ months. Informa also has wheat up 4 myn acres…pencil whipping with ave production numbers only gives us an additional 144 myn bu of wheat. COT report showed the specs backing off of wheat a little, while index funds added 10 myn bu. Specs have been big buyers of corn. They are now holding 2.045 byn bu (record position). Clearly corn futures are overbought and due for some correction/ consolidation….but we still haven’t gotten high enough to effectively ration use.
China’s Shandong province hasn’t seen rain in 4 months. Shandong and Henan are 2 of the major production areas (map attached). Spring crops are starting to fail. One article said that 210m people and 107 animals now rely solely on water deliveries from fire trucks for survival. Beijing has not received snow yet this winter.
Click to enlarge picture

US $ is up from 5 month lows. Futures were down hard overnight with corn off 9 and wheats down 12+. Overall very little new news. Export inspections showed good numbers for wheat with 25.8 myn bu shipped (4.1 myn SWW, 3.9 SRW, 10.3 HRW and 4.1 DNS). Corn shipments were ‘ok’ at 23 myn bu.
Futures are off this morning, giving some back. Corn is off about a nickel, red wheats were down 5-8 but are making an early morning come back. Chic wheat if off just a touch. Taiwan has lowered their import duties help keep food inflation in check. SK reduced their import duties from 25% to 0 on the first 60m mt or until June. Also heard Chinese vegi’s are up 12% in the last week. The Chinese did sell 10% of their auction allotment of corn. Still lots of wheat tenders working. Algeria just bot 29.4 myn bu of optional origin (to be delivered within next 3 months). Iraq, Iran, Saudi, Yemen are still looking. Egypt’s GASC says that stocks are sufficient for the next 6 months. Problem is, will prices be higher (depends on world weather). Consensus is that whatever damage was done to the Argie corn crop was already done, weather in the foreseeable future looks good. Brazil is expected to have a record bean crop unless late rains compromise it. Right now they are expected to harvest about 70 myn mt vs. an estimated 68.4 in Dec. Baltic Index down 3.9% last night. S&P cuts Japan’s credit score…the first time since ’02.
             Sales report showed mediocre corn sales of only 16.2 myn bu. The low end of trade guesses was about 23.6 myn bu. Ethanol margins are getting THIN. Although so far no announcement of plant shutdowns. Between ethanol subsidies and the value of DDG’s they are still in the black. In fact the EU is considering filing a complaint vs. US ethanol. The role of subsidies has US ethanol the cheapest source in the world on a delivered basis. Part of the problem with the potential complaint though is, that much of the EU ethanol is typically made out of lower grade wheat, and wheat in general is too valuable to make ethanol out of. Still, we could be bumping against pretty solid overhead resistance at least in the short term of corn…and although exports sales are off, they are not off enough yet to do any significant good to the corn S&D’s. Wheat sales were strong as expected at 32.8 myn bu…just under market expectations of 33.3 myn bu. The world market is still strong for quality wheat, and the world’s largest supply of quality wheat is in the US. Keep in mind these S&D numbers though: US stocks to use is 33%. SWW carryouts this year are expected to be 83 myn bu (they were 26 myn bu in ’07-08). ENDING world wheat stocks are expected to be 177.9 myn mt this year vs. 197.4 last year and 122.7 in ’07-08.
***Didja Know: 2011 is an unusual year: we will have 4 dates 1/1/11, 1/11/11, 11/1/11 and 11/11/11. Also try this out: take the last 2 digits of the year you were born, add that number to what your age will be after your birthday this year and it will equal 111.