More news about possible Greek default. USDA Supply & Demand Report this morning will set the tone for the rest of the week.
Tag Archives: Corn
Gold Under Pressure; Crude Showing Strength; Corn & Soybean Conditions Worsen
Mixed bag this morning. Gold under pressure and Crude and Copper showing some strength. With stocks up and US Dollar weaker give the impression that sentiment on the economy is becoming more stable. Corn and Soybean crop conditions continue to worsen which should provide some under-pin to the market.
FOMC Minutes Show Fed May Provide Further Easing
Private job estimates over night come in a little under expectations and modestly below last month’s Payroll numbers. Rumors that the Fed will be there to provide easing if necessary, but there does seem to be some divided opinions in the FOMC. However, there are members who are willing to do some more innovative things to help the economy. US grain crops are still a concern with both corn and soybean yields coming more in question. Gold and Silver have priced in some significant uncertainty, but we do not think the news will be there to support.
CORN: Demand Remains Weak but Yield Forecasts Continue Decline
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December corn is up as much as 10.3% in just seven trading sessions with the surge higher to new contract highs overnight. This marks 6 of 7 days of new contract highs. Supply issues continue to support the uptrend and fund traders have returned as active buyers. Open interest inched up to the highest level since June. In the annual Pro Farmer crop tour, the average corn yield estimate came in at just 147.9 bu/acre as compared with the USDA estimate from the August report at 153. If we plug in this yield estimate and leave all the other numbers unchanged, ending stocks come in at just 238 million bushels with a stocks/usage of 2.1%; both record lows. Keep in mind; this does not have any adjustments in harvested acres and many traders believe there will be losses of 400,000 to up to 1 million acres lost to flooding on key rivers and too much rain into planting season. The Commitments of Traders reports as of August 23rd showed Non-Commercial traders were net long 317,415 contracts, an increase of 6,161 contracts for the week. Commodity Index traders held a net long position of 351,218 contracts, up 4,696 for the week. The buying trend of the funds is seen as a short-term positive force. December corn closed sharply higher on the session Friday with fund traders noted as aggressive buyers. Fears of declining yield and some better export news helped support the run higher and weakness in the US dollar also was supportive. Private exporters reported a sale of 365,760 tonnes of US corn to unknown destination. Of the total, 234,840 tonnes are for the 2011/12 season and the rest for the 2012/13 season. Traders are expecting another decline in crop conditions ratings of 1-2% for this afternoon’s update from 57% posted last week. This would suggest 55-56% rated good to excellent as compared with 62% on July 31st which is about the time of the USDA crop production survey. Global economic concerns persist but the positive reaction for equity markets after the Fed Reserve Chairman speech Friday helped support.
TODAY’S GUIDANCE: Demand news remains weak but yield forecast continue to decline. There are still plenty of supply issues which might support. Traders will be watching the denting numbers for the weekly update this afternoon as there are increased concerns that the crop will mature and close the growing season quicker than normal due to July heat. The market typically does not “wait and review” so we would believe the market is still in a position to remain in a steady uptrend ahead as the rationing process is more difficult with declining yield.
TODAY’S MARKET IDEAS: December corn support comes in at 766 and 761 3/4, with 799 and 820 as next targets. Don’t rule out an eventual move to 868 for nearby futures.
Commodity Outlook – 2011.08.19
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While Warren Buffett thinks the US economy is stronger than the Federal Reserve does and rail car loadings in the US have remained fairly strong, Washington continues to undermine rather than help the economy. Just as the GOP-controlled House showed no desire to forgo their current 5 week vacation, the President, when asked if he would call Congress back early, indicated that was last thing he wanted to see. Clearly any politician worth their salt makes sure their message includes concern for the economy and the need to create jobs, but apparently the people with jobs (primarily those in Washington) don’t seem to have a real sense of urgency.
In our opinion, a recent serious decline in a private consumer sentiment reading highlights the ongoing negative drag spilling out of Washington, and that in turn could increase the difficulty in turning the US economy around quickly. With the early start of the 2012 Presidential campaign by the major political parties last week, it is safe to assume that the Super Committee (when they get around to convening) will continue to face an extremely partisan environment. With US leadership unable to settle the ultra critical debt/spending debate, one might also expect any effort to put together tax reform or a stimulus package to be a very, long-drawn out affair. In the mean time, some members of the Fed have become so negative toward the economy that one of them recently suggested that the Fed will probably won’t have to raise interest rates until sometime in 2013. In other words, it could be years before any tightening is undertaken!
Equities and certain physical commodities showed the capacity to rebound last week, but the coming three weeks might see the stock market sending a definitive message to US leaders that something real has to be done to reduce the US debt load; otherwise investors could begin to flee US equities and the US Dollar.
While markets like cattle, pork, corn, gold, silver and platinum should be able to stand up to noted weakness in US equities, a sharp slide in the US Dollar could provide an added lift for commodities with positive or strong fundamentals. Given a combination of even more slowing evidence from the US economy and a resumption of political rancor in Washington, the dollar could easily make new lows for the year. Some analysts think that “business as usual in Washington” will prompt threats from US credit rating agencies and perhaps even some heat from China, Europe and or the IMF.
In the event that the global community is forced to exert pressure on the US to act, it could result in the dollar falling back toward the 2008 lows! In other words, one should not be surprised to see the Dollar react as if something worse than sub-prime is threatening the United States!
The ‘Risk Off’ Mentality Continues
Global equity markets continue to slide overnight. Concerns over the European banking industry persist. Fund held positions of long crude / short natural gas are rumored to be getting unwound. This may cause a short-covering bounce in natural gas. Corn and other agricultural markets continue to be pulled down by outside macro-economic influences as opposed to their bullish internal fundamentals.
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Two agricultural markets which might do well in the aftermath of the current financial crises, the downgrading of US credit and the European bank issues are corn and hogs. Neither market is low-priced, but the fears of weakening global economies in Europe and the US and that the slower growth might drag the rest of the world into a double-dip recession may have held these markets down. Once the smoke from the financial crisis clears, we could be in a more inflationary environment, at least for commodity markets. The US debt issues could spark a weakening US dollar. This might re-convince investors around the world to hold real assets like commodities instead of paper assets, especially markets that have solid supply/demand fundamentals, particularly if US demand stabilizes and China stays on a soft-landing but solid growth path. Corn and hogs are two markets which could feel the effects of a sharp increase in China’s import activity into 2012.
If it were not for the debt crisis, the outlook for declining world demand for commodity markets and the “extra” selling that the market needed to absorb due to the “risk-off” psychology, corn prices might have already challenged $8.00.
Extreme Heat in July Cuts Corn Yield Prospects
The August 11th USDA Crop Production and Supply/Demand Reports were the first surveyed reports of the year. In the report, corn production came in at 12.914 billion bushels, which was 168 million below trade expectations and down 556 million from last month. Average yield was pegged at 153 bushels per acre, compared with trade expectations at 155.5 and last month’s estimate of 158.7. While planted acres were left unchanged, harvested acres were revised down by 500,000. US ending stocks for 2011/12 season were pegged at 714 million bushels, which was 37 million below trade expectations and down 156 million from last month’s estimate. This results in a stocks-to-usage ratio of 5.4%, which is the second lowest on record (since at least 1960). Beginning stocks were adjusted higher by 60 million bushels, and along with the lower production, the USDA lowered feed usage by 150 million bushels, ethanol usage by 50 million and exports by 150 million. Any further reduction in yield next month will leave the market in a position of “needing” to move to a higher price level to ration demand.
With crops in Illinois rated 50% good to excellent versus 64% last year, traders are questioning the USDA’s current Illinois yield estimate at 170 bushels per acre, especially since their yield last year was only 157. Since 1975, there have been 18 years in which the USDA lowered its production forecast in the August report. In 14 of those 18 years, the USDA made another adjustment lower in the September report.
Also in the report, world ending stocks were adjusted lower to 114.5 million tonnes from 115.7 million last month, which was already a 5-year low, and from 122.9 million tonnes last year. World stocks/usage is now estimated at just 13.2%, which is the lowest since 1973.
While the USDA report news is certainly a bullish, there are several factors which would argue that the situation may get even tighter ahead. Primarily, the USDA might be underestimating the impact of the July heat wave on corn yields; it might be underestimating China’s demand; and it may have left China’s production forecast too high. The USDA’s forecast for Chinese corn production is at a record high 178 million tonnes, down from 173 million last year and 158 million two years ago. But with 15-20% of the China’s corn growing areas reportedly under stress, production could be adjusted lower by 3.5 million tonnes or more in future reports. The USDA left corn consumption in China unchanged at 182.5 million tonnes, but there are plenty of reports that suggest the need for China to expand its livestock production, which would require corn consumption for feed to move higher.
The devastating heat in July across the heart of the Corn Belt will likely be a major factor in determining final yield. Study after study from universities in Illinois, Iowa, Nebraska and others point to the correlation between high nighttime temperatures and below-trend yield. Weather and rain amounts in August are important in determining final yield, but to believe that US yield will be higher than last year runs against most of the research on the topic.
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Commodity Outlook – 2011.08.05
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In our last issue we predicted a further slowing of the US economy before a transition to a better 2nd half of 2011. However, the stalled US debt ceiling debate that was eventually pushed out to the brink of the August 2nd deadline has probably left US consumer and investor sentiment injured for most of August. Given the ongoing political divide, it is even possible that sentiment will continue to be affected well into September. In looking back at a chart of US Consumer Confidence, it is clear that it was dramatically undermined by the Japanese natural disaster. While we don’t think the US debt crisis created as much raw fear and anxiety, we do think it added to the softening of the US economy. We might also suggest that the divided political arena in the US could ultimately cause US consumer confidence fall more than it did from the Japanese earthquake.
In looking at the historic rally in gold, it is clear that the most recent wave of anxiety was indeed very significant. This is another indicator of the collateral damage done to the US economy. Furthermore, with independent and foreign-based entities advising the US of the need to reduce US spending by $4 trillion and the initial effort from Washington failing to meet even half of that goal, the ability to protect the US from a something similar to the sub-prime crisis has been dramatically reduced. In fact, with both sides of the political battle in the US upset with the debt ceiling extension plan and the anti-spenders promising to battle even more aggressively in the future, it is clear that a major portion of the US populace, government and media have yet to grasp the reality that US government spending is going to come down.
With US economic numbers softening, the US Fed thought to be on hold and the US government “probably” limited in its ability to offer stimulus programs through the end of the year, it could be very difficult to throw off a generally bearish macroeconomic track for the weeks ahead. Expectations of slack US data points have recently had little impact on members of the Fed, with some members steadfastly holding against additional quantitative easing efforts. Certainly the US economy could somehow gather itself and temper macroeconomic fears, but we think that is unlikely until the negative environment of July and early August works through the closely watched US numbers. About the only thing that could alter our negative 3-4 week economic outlook would be a surprise “grand deal” from the super committee, if it were to find the necessary spending cuts from programs that don’t have broad political support.
Therefore we expect to see weakness prevail in US equities, energy prices, sugar, platinum, copper, cocoa and other physical commodity markets that lack the internal fundamental fortitude necessary to stand up against a quasi-deflationary environment ahead. Some markets like corn and hogs appear to have the fundamentals to stand up to some outside market pressure, but it is also possible that weakness in the US Dollar will provide some underpin for physical commodities in the weeks ahead. While Euro zone debt fears have seemingly become entrenched, the capacity to cushion the dollar against its own problems is limited. Therefore, it is possible that further economic weakness in the US economy and the still unresolved nature of the US debt battle will likely leave the dollar in a downward track. Some traders even suggest that interest rate differentials between the US and the euro zone are such that the dollar will remain under pressure from that angle, and that in turn could serve to support certain physical commodity markets.
Corn: USDA Sets the Tone
by Terry Roggensack on September 12, 2011
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NEAR-TERM MARKET FUNDAMENTALS: The USDA reports will set the tone for the session today with traders looking for US production near 12.505 billion bushels, down near 410 million bushels from last month and compared with 12.447 billion last year. Traders see yield just under 149 bushels per acre. Old crop ending stocks are expected to be adjusted higher by about 35 million bushels from 940 million last month. New crop ending stocks are expected to fall to near 636 million bushels from 714 million last month. December corn closed 2 1/2 cents higher on the session Friday but down 23 1/2 cents for the week. Weakness in outside market forces helped to limit the buying support. A move to the highest level since mid-March for the US dollar added to the negative tone. Better than expected export news plus some talk of frost possibilities for the northern Midwest for late this week helped to support. Weekly export sales came in at 820,600 metric tonnes for the current marketing year and 50,000 for the next marketing year for a total of 870,600 which was near expectations. As of September 1st, cumulative corn sales stand at 29.9% of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 23.3%. Sales of 596,000 metric tonnes are needed each week to reach the USDA forecast. In addition, private exporters reported a sale of 127,506 tonnes of US corn to unknown destination. Traders are concerned that usage is already being rationed with recent high prices as corn values remain well above wheat. The Commitments of Traders reports as of September 6th showed Non-Commercial traders were net long 353,708 contracts, an increase of just 385 contracts for the week. Commodity Index traders held a net long position of 365,135 contracts, up 264 for the week.
TODAY’S GUIDANCE: On supportive news, a move through resistance at 752 1/2 should be enough to assume a resumption of the uptrend with 799 as next objective. On bearish news, 701 1/4 and 677 1/4 become key support levels.