Grain Market Reports: 10Jan2011

Tanner Sheahan
CPS Tangent

Here are the last couple grain market reports from Dan Steiner.  Prompt prices are still $7.45-$7.70 through the end of Spring with new crop for 2011 landing at $7.45 on Monday.

6 Jan 2011
The markets have been very uneven the last few days as the funds start to ‘re-balance’. Weekly sales were predictably weak with the holidays just over. Tunisia, Algeria, Malaysia, Oman, Iraq, Bang and Thailand all tendering for wheat (US or other origin). Egypt, Malaysia and Saudi still working big corn tenders. As food inflation continues to ratchet higher, foreign gov’t are looking toward ‘tightening’ money supply to contain inflation. Last night, riots broke out in Algeria and are being attributed to sharply higher food prices. If the weather doesn’t straighten out by this spring, cereal production will only get shorter. The $$ has been stronger as economic woes weigh on all the markets. Economic recovery will not be even or smooth. Fertilizer mfg MOSAIC is estimating US corn acres this spring at 92-93 myn acres. Today it ‘feels’ like the market has about 90-91 myn acres. 1 myn acres translates into roughly 142 myn bu depending on what final yield you use. Baltic Dry index is down again (indicating weak world demand for ships). This is the lowest level since 4/09. The climate guys say that La Nina appears to be near its peak in strength, but are now estimating that it will carry further into ’11 than originally thought. Typically this means cooler/ wetter in the northern parts of the US (Midwest/ PNW) and warmer/ drier in the south (southern plains/ HRW) included. Dupont says that they have developed a new variety of corn for ‘water limited environments’. This drought tolerant variety is expected to increase yields by 5%.
               The thing driving the markets today, in addition to the ‘re-balancing’ where funds are liquidating portions of their Ag holdings is another change to SAM weather. Brazil rec’d very good rain, with excellent coverage…with more in the forecast. Argie prospects have improved and are not only expected to get good rains, but much cooler temps (80-90’s). Question still remains on whether the dry areas will participate, today specs are thinking ‘yeah’ they’ll get rain…Article out of Aussie has 1 ‘analyst’ expecting that only 25% of crop may get downgraded to ‘feed’…that would be remarkable…we’ll need to keep watching it. Chinese gov’t said that their just ended corn harvest was about 915,000 mt shorter than what they expected (390 myn bu). You may find this interesting: They averaged 5317 kg/ ha. IF my math is right (I graduated from Denton, Mt) that works out to 2152 kg/ acre. With 2.204 lbs/ kg it works out to like 85 bpa. You can imagine what GMO varieties might do for Chinese production when/ if they are ever adopted.

10 Jan 2011

$ is up overnight, crude is also higher following a report of leak in the Alaska pipeline. Even with a stronger $ grains are higher. It feels like most of the ‘re-balancing’ is complete. S&D’s are firm and provide good footing. Weather is also price positive. Egypt tendered over the weekend and booked 4.4 myn bu of Aussie wheat at $8.05 plus freight, and also 2 myn bu of US SRW. Egypt passed again on the US HRW…said px was too high. No SWW offered (river closure?). The freight from Aussie to Egypt is about $1/ bu. VERY cheap. In fact ocean rates dropped hard again over the weekend BDI was 1419. FYI: the all time low was 12/08 at 663. The all time high was 5/08 at 11,800. Traders are working again to position themselves for Weds’ USDA report. Today, the average trade guess has US winter wheat acres up about 3 myn acres to 40 myn acres. Traders are also expecting the gov’t to take ½ a bpa off of corn yields which would drop production by about 40 myn and end up with corn carryouts near 758 myn bu (80 myn bu less than last month). I haven’t talked to anyone that think the USDA would print a corn c/o number with a 6 in front…the panic would be HUGE. Still, it feels like MORE corn rationing MUST occur before next harvest.
               When looking at the COT, specs took some more off the top and reduced their positions/ took profits on about 35 myn bu from Chicago. Index funds, as part of their re-balancing took another 35 myn bu out of corn. Their holdings in corn are now 1.615 byn bu, which by the way is almost exactly where we were this time last year. Over the course of the year they did get it as large as 2.2 byn and as low as 1.5. Read an interesting article about the strong correlation between the SOI index (used to rate La Nina/ El Nino) and the fortunes of the Kansas wheat harvest. A strong SOI typically results in some of the lowest production numbers in Kansas. By now we know all about their planting conditions and crop scores. Last SOI was a huge +26 and La Nina was expected to run well into ’11 at least….does not bode well for a quick turnaround for Kansas.
               Argie was dryer over the weekend than expected (also boosting corn pxes). MORE rain for Aussie over the weekend. German officials shut down 4700 farms in 8 out of 16 states to test for ‘dioxins’. NOTHING will move off those farms till tests are complete. FWIW Germany has 375,000 farms. The real problem with something like this is the perception of ‘food safety’ which is a VERY big deal for them.