Grain Market Report 25Feb2011

Tanner Sheahan
CPS Tangent

Snow!  This area comes to grinding halt when our precipitation comes in solid form but it's a nice change from the norm.  Drive safe!

Wheat has done some bouncing this week.  From Dan's reports it sounds like the bounces are fairly violent but we're still looking at wheat approaching $8.  Yesterday, 2011 prices ranged from $7.50-$7.75 and new crop 2012 hit $7.29, the lowest we've seen in a while.  Today we're looking at $7.60 for post harvest and $7.70-$7.8- from now through June.  Next years price has recovered to $7.64. 


After yesterday’s washout, last nights futures worked timidly lower. Corn futures closed the night session down another 16, while wheat coughed up another 10-14. European wheat futures lost 7%, then recovered to close out down 1.1%. Expanded limits today: Corn is .45, wheat is .90.
 Predictably Egypt tendered last night. They tendered for US HRW, DNS, SWW, SRW. Funds/ Specs continue to look toward safety until the Mid East settles down and becomes a bit more defined. Oil, gold are the recent winners. Fundamentally the only change is UPCOMING in China.
           Weatherman says ‘significant and prolonged wet period is headed for Central China. Other than that, the 7-10 day calls for below normal precip for the main wheat production areas of Texas, Okie and Kansas. The 10-14 day only calls for that area to get both drier (area expands) and warmer than normal. Mexico has now replanted 336m acres after recent freezes. They expect corn imports (from the US) to hit 7.5 myn mt this year. The EU commission is slowly being forced to accept the fact that their own scientists have been unable to find a threat from GMO. It is still a political lightening rod. Politics/ consumer acceptance will likely drive the topic…but market forces won’t go away.

Yesterday, we had something that appeared to be a recovery, or was it a ‘dead cat bounce’? Futures under continued pressure again this morning.  Crude is up $2.75. Libya’s oil exports are down 25% and grain cargo ships are being diverted from ports. With all the problems in the Mid East, this certainly qualifies as one of those ‘black swan’ events. Sharply higher oil prices are NOT conducive to a recovering economy. I would expect to see a pretty drastic change in the COT report next Monday. The ‘long only’ index funds have sold over 300 myn bu of corn in the last month and ½. USDA estimated acres again, and they were identical to the 2/14 numbers used earlier…indicating 92 myn acres of corn. When the math is done, it works out to 13.5 byn bu @160 bpa yield. With current usage (ethanol usage numbers will likely INCREASE before year is over) we would only have 700 myn bu of corn c/o for 2012.
           Ethanol gets its own paragraph this am. EIA showed no ‘build up’ of inventory, but there were over 350 myn gallons exported. Margins widened by an estimated .25/ gal with runup in crude and drop in corn values. It seems EPA may lose some funding in the current budget battles, which would effectively block implementation of E15 on 2001 and newer vehicles. The ethanol industry has started to mobilize to develop support in the new Congress for maintaining current subsidies/ credits. Who knows how that turns out, but one would have to imagine that cuts will be made there as well as other areas.
           Egypt booked 4.2 myn SRW overnight and 4.4 French wheat. They cancelled the HRW portion of the tender. China tendered for 4 myn bu of Aussie milling wheat. COFCO (state trading arm of CNGOIC…Chinese National Grain and Oilseed Info Center) confirms that they have bot 1 myn mt or 36.7 myn bu of Aussie feed wheat. Chinese corn stox: use is estimated at 37% which is tight for them (they would normally run about 93% or carry over almost a whole years supply. This tends to support theory that China will be/ could be in for large amounts of corn. And the Chinese gov’t also announced that they will set up their own bio-tech seed industry. Mexico continues to replant (est over ½ done). Their national corn group says they may need to import additional corn (white and yellow). White corn is important to keep tortilla prices low.
***Didja Know: IF you are 1 in a million in China, there are 1300 exactly like you! China is the world’s #1 English speaking nation. In the last 5 minutes or so, 67 babies were born in the US, 274 in China and 395 in India.

Markets have been very exciting this morning! I think I got whiplash looking from screen to screen. At one point Corn was up the limit and Chicago was up 46! We keep talking about volatility, but until you have a day like this/ week like this, it is just hard to explain. Again this market is NOT being driven by fundamentals. The fundamentals have not changed, but with what is going in the Mid East, that certainly qualifies as a ‘Black Swan’ event. All this volatility has resulted in KC reporting ‘record’ volume. I would imagine that the other exchanges will post record volumes as well. More evidence that the futures markets are not being fundamentally driven.
           Snow pack in the Northern tier states is rated the heaviest in 8 years (there will be big flooding). Typically the flooding starts Mid March. The weather man says the northern tier states will remain ‘colder than normal’, while the south will be ‘warmer than normal’. I have got to believe we will see some winter kill resulting from last night/ tonights temps. Ground is totally clear, and although the plants have had time to ‘toughen’ up…we will be near zero. Export sales report showed very strong wheat sales of 37 myn bu and also very strong corn sales of 59 myn bu. Actual shipments are still lagging however.
           IGC reported yesterday that they are anticipating increase wheat production to the tune of +24 myn mt (equal to another Aussie crop). And are projecting the 2nd biggest ever wheat production. Its all coffee shop talk today as there simply is a ton of weather and it is way WAY early, even so, I suppose you have to start someplace. Indonesia booked 5.7 myn Aussie wheat last night, Bangladesh is tendering for Indian wheat, and the Saudi’s are tendering for 10 myn bu of wheat…April/ May TOS. Turkey dropped their wheat import tax to ZERO through June. China confirmed overnight that their corn reserves are less than 15 myn mt (that’s probably HIGH). Their normal carryover in corn would be about 35-40 myn mt. Mexico is projecting corn prod of 23.5 myn mt after reseeding vs. 25 myn mt prior to the frosts.

***Didja Know: “Never take life too seriously, no one ever gets out alive anyway” Anon. As of 1996 the USDA categorized frozen French Fries as ‘fresh vegetables’…it is possible to eat 3500 crayons/ day and still not hit the toxicity level of normal glass of water…