Closing Comments
Lynn Miller
October 7th, 2015
Corn:
This market hit a pretty good road block last night as we approached the $4.00 mark. I believe we are positioning for a rally if the numbers are bullish enough to justify it on Friday morning. Until 11:00 Friday I believe we are probably in a holding pattern.
A few things going on fundamentally:
Weekly ethanol was up 7,000 barrels/day. Ethanol stocks up 30,000 barrels.
DDG exports remain booming.
Harvest seen as 27% complete nationwide.
Export sales tomorrow expected to be 550 – 750 mt vs. 748 last week.
Looking at this crop you will see variable yields east of the Mississippi and exceptional yields west of the Mississippi. However, it doesn’t matter where you live of the size of the crop – producer selling is minimal. And I can tell you that the amount of unsold 2014 bushels still out there will astound you.
Technically all three indicators remain positive the December corn futures. Today’s price action has the stochastics now tipped, not quite issuing a sell signal, but staged to do so. I was surprised that the newly established support of $3.94 held. I still feel this level is sellable. Especially considering the futures on this day in 2014 were $3.40 with a harvest basis of -0.90 (Craven bid). My next targets would be $4.06, $4.18 and at the top end of the range $4.29 from the gap left back on 7/17.
Soybeans:
A narrow trading range today. The trade is expecting a ½ million acre reduction Friday, with a reduction of 24 million bushels in production.
Some things fundamentally on the markets mind:
Face harvest pace. Seen as 42% complete nationwide with a wide open forecast.
Talk of higher Brazil currency slowing farmer selling there.
Trade is estimating world soymeal trade may be as much as 24% over last year.
Weekly export sales estimated 700-1,200 mt vs 2,506 last week
I want you all to pay close attention to the current basis levels we are seeing in beans. This narrowing at harvest I believe is a gift, driven by local competition and an empty supply pipeline. However, they are not reflective of the forward market. Don’t be surprised to see this widen out as harvest wraps up.
I have been asked several times these past few day to explain how this Basis Fixed contract works and why I think it’s the way to go with a portion of your beans. So here it goes:
Setting basis on delivered bushels will stop storage charges so let’s look at a scenario setting basis against the March futures at Craven.
If we were to DP these beans we would pay 5 months of storage (Oct –Feb) and that would cost us $0.25/Bu.
Today’s basis bid is -0.85. If we set against the March the carry in the futures market is $0.07. Since we cannot gain carry in a basis situation our basis will widen to -0.92; however, this buys us until February 15th to price these bushels.
($0.25 – $0.07 = $0.18 better to you.)
There are a couple to ask yourself when making this decision:
1st do you think futures will rally between now and next Sept?
2nd do you think basis will improve more than $0.18 in this timeframe?
Technically, all three indicators are remain bullish the November futures. For day three I’m going to show you this trend line that is proving to be a really large hurdle for this market to cross. The stochastics remain in neutral territory. My price objectives remain at 8.99, 9.27 and 9.50.
Wheat:
A weaker corn market pretty much took the legs out from under wheat today and set us up for a technical correction. And that is basically the story of the wheat action today. Oh, and then we had a slightly higher dollar to give us some pressure.
A few things the market might be contemplating:
Total sales year-to-date aer 27% below the 10yr average
Seasonal HRW sales are 2nd lowest since 1980’s
HRS sales are doing better – 8% below the 5 year average and 18% behind last year.
Export sales tomorrow estimated between 175-375 mt vs only 77 last week.
Technically, two of three indicators remain bullish the December Minneapolis futures. The stochastics have tipped to issue a sell signal this afternoon. Contract low of 4.99 continues to be our main support and my selling targets have not changed either at this point: $5.35, $5.58 and $5.76.
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