Grain Market Report: 8Feb2011

Tanner Sheahan
CPS Tangent

Wheat is remaining strong, along with other commodities.  Current rail prices are running $8.60-$8.70 through June.  New Crop is at $8.50 for July/August and $8.55 for September.  2012 N/C price is $8.05.

I wanted to post Dan's explanation of the prices he gives one more time.  With the river closed, Portland prices are trying to keep wheat/grain flowing but it's global unrest, government mandates, and disasters that have the price where it is today.  The river is still scheduled to reopen around the middle of March.
[The prices] are  a ‘composite’ of what we believe to be ‘tradeable’ Portland bids. I say ‘tradeable’ because with the volatility, exporters values can vary widely. With the river being down, there are times when Portland is bidding enough premium to pay the difference on rail freight. Otherwise what some Co-ops are doing is taking the April bid and subtracting a nickel per month to cover storage and interest. SO if April is $8 March is 7.95, Feb is 7.90, Jan is 7.85. When Portland gets tight, the price goes up and if it goes up enough to cover the extra cost of rail…it goes rail.

Markets started the morning getting hammered, with corn down 6 and wheats down 18 or so. ½ hour later the markets rallied back to black territory, and now have given all that back up again with corn now down 9 and wheats off 9-12. LOTS and LOTS of volatility. Corn sales this week were strong, but not strong enough to overcome profit taking/ consolidation. (traders had expected 17.7 to 27 myn bu). Wheat sales were lukewarm at 21 myn bu. China bot 17 myn bu of US beans last night. Iraq will is tendering for 3.6 myn bu, and Japan booked 6.7 myn bu of multiple origin wheat. It was interesting that they lowered HRW pro specs on this last tender by ½%. Next weeks EIA report for gas/ fuel usage will be interesting. With nearly 1/3 of the US shut down for at least 2 days due to blizzards, there should be a huge build in stocks. GOP is expected to introduce legislation prohibiting the EPA from regulating GHG…we’ll see how that goes…The USDA could decide yet this week on the status of GMO beets. The opposition has not submitted any claims of harm, but only speculation of what MAY occur from agency actions. The case will go before the most liberal court in the land in San Fran.
           Rain apparently does make grain as the Paki gov’t announced they believe they will be able to export up to 3 myn mt of newly harvested wheat, which should be coming off in the next month or so. ABARE has reduced their production estimates down to 25.1 myn mt. The FAO reported that world food inflation was up 3.4% last month. Russia said they expect inflation of 7-8% which is about 2% higher than est earlier. They have also joined a list of countries that have reduced/ eliminated various import tariffs in an attempt to import food cheaper and contain costs. The problem is of course that there simply are not that many countries exporting grains/ cereals (the same ones reducing import duties still have their own export bans in place…gate really needs to swing both ways. Thousands are gathering to ratchet up pressure for the Yemenese pres to NOT wait till 2013 to step down…they want more action quicker. Add them to the list of countries in turmoil. USDA has the Argie corn crop at 22 myn mt still, but the Rosario exchange has the crop estimated at 19.7 myn mt…the already expected record Brazilian bean crop appears to be getting a bit bigger each new report, now up to 68.8 myn mt

***Didja Know: Researchers say that the color light-green will help relieve homesickness. 90% of all ‘Conestoga Wagons’ used by immigrants broke down irreparably in less than 795 miles.


Futures started lower again this morning, only so far there doesn’t seem to be a lot of interest in rallying…volume just seems light this morning. DNS futures down a dime, KC is down 6, Chic is off a nickel and corn is up 3-5. ICE (InterContenental Exchange) announced that they would probably enforce position limits much closer. For example; specs can have a position of 300 caks in cotton unless they can demonstrate that they are actually hedging. The result? Cotton is off HARD, Sugar is down 9% (more than 320 points). The really interesting thing is that Sugar was off hard on news that they are projecting 10% of the Aussie sugar crop was lost with this last cyclone. CFTC is also looking at writing more rules on position limits. They will need the new rules before they can effectively manage existing limits since the old rules have too many holes.
           Protests continue and even build in size and scope. Other countries will be effected. More talk this morning of long term Chinese grain purchases. Volume this year could hit 3-9 myn mt. So with CURRENT usage, large acreage increases would be REQUIRED (5+ myn acres to make S&D’s work). $14+ beans means it will not be a layup. HRW winterkill is now almost a certainty, the only questions are how much? How bad? We have not heard of any winterkill situation from the Black Sea region so far. STATS Can reduced their stocks of milling quality wheat by about 2 myn mt. So the supply of milling wheat gets a little smaller.
           EPA throws the Bio-Diesel industry a bone with mandates for Bio-Diesel blends and subsidies. Today it takes about 7.5 # of beans to make a gallon of bio-diesel. By the time the costs are calculated, Bio-diesel costs about $2/ gallon more than petroleum based. With all the forces at work here, this promises to be an interesting year: We already have $14 beans, We already are facing a pretty serious battle for acres this spring, Food vs. Fuel debate will only get bigger and louder from here on out. At least with Bio-diesel they don’t seem to have warranty issues like they do with higher ethanol blends. One other thing while on this topic…until you start to hear about ethanol plants being idled back or seeing production cuts in ethanol, corn is NOT high enough. Today it does NOT look like we can balance the S&D’s with just a little lower feed usage or smaller exports…we need something much bigger, unless the feed usage/ export numbers fall off the table.

Markets started out much stronger in early trade, then set back and seemed to have found a level of support. Corn is off 3-4, while Chicago wheat is up 3-4, same way with KC and Mpls. USDA will release latest version of the S&D’s on Wednesday. Today it is hard to imagine a scenario where the USDA does NOT increase corn used for ethanol. Headline news this morning: Cotton acres are seen up 14%. Japan booked 3.9 myn bu corn ½ o/crop and ½ n/crop. Iraq is tendering for 3.6 myn bu of wheat, Bangladesh is after 1.8 myn bu and Turkey is looking for 11 myn bu, Saudi is tendering for 18.4 myn bu.…and those are just the big ones…lots of interest in wheat. Egypt tendered Friday and 6.2 myn bu. 2 myn of it was SWW, 2 myn was Aussie and 2.2 myn was Argie. The Egyptian gov’t says that they are primed for more purchases if need be. The problem is food inflation. We simply don’t see it here, but it is a HUGE issue there. Consider this: 2 months ago, about a 25 pound bag of flour in Iraq cost $8.50. Today that same bag will be $26. In the case of Iraq it is a temporary thing, and overall their inflation is only 3.3% Argie inflation is rated at 30%. The gov’t is trying to contain inflation. Their approach is to try to discourage exports to increase domestic stocks to contain food prices. When you multiply this across the world, you can see why prices are acting the way they are. Those with stocks are trying to hold on to them to contain prices, while importers are at the mercy of the market.
           COT report was benign, no real changes there. USDA gave farmers the green light to plant RR beets…at least until there is another challenge in the courts. Farm Bureau says that farm crop insurance subsidies are likely to be a target for potential budget cuts
           Got a busy week already lined up. Meetings in Portland today and tomorrow.  Morrow County Grain Grower Marketing meeting Wednesday morning, then up to Bickleton on Thursday…so call for updates

***Didja Know: From 1970 to 2010 world population doubled, yet ‘arable acres’ remain unchanged. The US produces 18% of the world’s food on just 10% of the farmed acres…