Grain Market Chatter Closing Comments 02/10/2015

Craig’s Closing Comments

February 10, 2015

We will be having a marketing meeting at the Northville Community Association Building beginning at 1:00 Wednesday, February 11^th.  Hope to see you there.

Although we don’t talk about it much in this space I do find it interesting that Baltic sea freight is trading at its lowest level since 1985.   The reason given for the low sea freight is slow Chinese demand.  If this slow Chinese demand spills over into the world of agricultural commodities it could have a significant impact on all of us.  We will want to keep an eye on this trend. 

Corn:

The projected ending stocks for 2014/15 came out at 1.827 billion bushels.  This was below the average trade guess of 1.879 as well as being 50 million bushels less than the January report.  We saw the USDA increase the corn used for ethanol production by 75 million bushels while reducing feed use by 25 million.  On the surface this would seem to be bullish but today it wasn’t enough to push the market higher.

From a world perspective the USDA moved the world corn ending stocks to 189.64 MMT.  This is up slightly from the January number but a huge leap over last year’s ending stocks number of 173.8 MMT.   We saw higher production in the FSU and EU.  For example, corn in the Ukraine was increased by 5.4% over last month’s projection, which should allow them to continue their aggressive exporting program.

Meanwhile, in Brazil corn crop planting is estimated to be 13% complete in Mata Grosso, and 25% planted in Parana.

Technically speaking, in spite of today’s lower close all three of my technical indicators are currently bullish.

Soybean:

Mark Twain once observed – “The reports of my death have been greatly exaggerated.”  I hesitate to blow taps over the bean market but one must be sobered by the reaction that we had to today’s market.  The February USDA report actually surprised the trade by reducing the projected ending stocks by a number larger than had been estimated.  Last month we were left with a projected 2014/15 ending stocks number of 410 million bushels.  Coming into today’s report the average trade guess was that we would see a number of 398 so the actual number of 385 should have been friendly. In fact the initial reaction was to trade higher but that quickly fizzled and we traded lower and then closed near the low of the session. 

We were initially buoyed by the projected increase in exports and crush but it didn’t last long as the market was pressured by increased selling on the part of South American farmers.  I believe the market was also sobered by the fact that in spite of today’s reduction in projected carry-out the world is still looking at a demand to use ratio that is over 30% and there is no way to turn that into a happy bull story.

Looking forward I see that The National Cotton Council’s survey results are out for the 2015 season and they are projecting planted cotton acres to be 9.4 million.  This is down from the 11 million planted acres of 2014 and it is expected that the majority of these acres are switching to soybeans.

Reportedly, bean harvest in Mato Grosso is currently estimated 17% complete while Brazil as a whole is roughly 10% harvested.  Producers in Mato Grosso continue to report record yields out of the field.

Today’s close turned two of my three technical indicators bearish.  To add insult to injury the bar chart also is giving us an outside day lower as today’s market traded higher than yesterday’s high, lower than yesterday’s low and in fact closed below yesterday’s low.  When we see this type of chart formation we see follow through in the direction that it closed roughly 80% of the time.  Thus, I would expect the market to open lower again tomorrow.

Wheat:

The wheat report was kind of a sleeper.  The average trade guess was that we would see a projected carry-out of 689 million bushels so the actual number of 692 million was slightly larger than expected.  The larger surprise came in the world stocks number.  We saw this number swell from 196 MMT last month to 197.85 MMT in today’s version of the report.  The average trade guess was looking for a number of 195.83 MMT so a number in excess of 2 MMT larger than what was expected put pressure on prices today.  Last year the ending stocks came in at 187.46 MMT so this represents a significant year over year increase in carry-out and it is tough to turn that into a bullish scenario.

In other news I see that according to ABARE, the Australian wheat production forecast is up 390,000 tons to 23.61 MMT.

Finally, it is being reported that China may offer up to 970,000 tons of wheat from state reserves for auction this week.

In spite of today’s lower close all three of my technical indicators are currently bullish both the Minneapolis and Kansas City March futures.