Markets closed firmer today as spreads firmed up and old crop tightness was back in the headlines.
Corn lead the charge up with old crop corn up 15 cents a bushel, new crop follow up 8-9 cents, KC wheat was 9 cents higher, MPLS wheat was a dime higher, old crop soybeans were off a penny, new crop beans were down a nickel, CBOT wheat was up 8, equities bounced with the DOW up 131 points, the US dollar was very strong up 755 at 82.239 on the cash index, gold was up about 20 bucks an ounce, and crude was up 3 bucks a barrel.
Not a bad day for the grains; one that actually seen the May corn contract fill the gap it had left after the March stocks report that had sent our markets into shock. Hopefully that means that the 7.00 area will be a target for the July futures once the May goes off of the board. I haven’t personally had much for calls for corn; but I am hearing of some basis levels firming up in other areas. I think that leads us to a firmer basis; but maybe not today because most of the ethanol plants in South Dakota have very good May/June coverage. They need to buy some of the summer months; but they can’t sell ethanol and make it work out there either. So most plants are in a catch 22; they are full nearby; but need to buy nearly all of their July/August/September corn yet; but can’t because they can’t sell ethanol any place close to today’s ethanol numbers.
The ethanol futures market today closed at 2.71 on the May; which I believe expired today. The June Contract was at 2.52, the July at 2.43, August 2.34, September 2.20, October 2.06, November 2.00, and December 1.97. I am no expert when it comes to ethanol; but I can understand why an ethanol plant would be hesitant owning some of the deferred slot corn as on a percentage basis the ethanol inverse is basically as much as our corn inverse. The May-Dec corn inverse is out to nearly a buck and a half a bushel.
Bottom line is basis should be very supportive; but some ethanol plants will have a hard time paying the same price or a premium for August/September corn over today’s values when the product they sell is a major discount. Hopefully what happens is that the deferred markets come up to meet where the nearby is at; for both the ethanol and corn market. Keep in mind that if that happens basis might struggle out in the summer months; or not get to the big over numbers like it did last year.
At the end of the day one has to be very friendly basis and as each day that goes by without much corn in the ground the chances of ethanol plants needing corn for late September and early October grows. Keep in mind last year basis was hot; but the local ethanol plants were saved via an early corn harvest. A late corn harvest this year won’t save the day for them. Plus nearby margins have improved enough that some plants might be able to afford to lose some in the later months; versus shutting the doors and waiting for the new crop.
This a.m. we did have export sales out; good for new crop for all three of the grains. But old crop was so-so with the only positive highlight being we continue to sell bean meal despite the fact that we are already over what the USDA has us pegged at. That should be considered friendly and lend support to our crush market. Perhaps we have stopped exporting the beans because we simply don’t have them?
One thing to keep in mind on beans is there is a lot of talk of imported beans coming over here and new crop ideas are that we are increasing the acres. So some advisors are talking about the possibility of sub 10.00 new crop beans. I am not in that camp; but we do have to realize that high prices cure high prices. South America has done a great job of increasing their supply and we have the POTENTIAL to have a record crop in the US; plus questions have shown up on the China demand because of economic data as well as the bird flu. I don’t want to jump in the bear camp; but I am not afraid to practice a little risk management either. If you are uncomfortable on the present volatile ride perhaps use some options to help mellow the ride out a little bit.
The other news out this afternoon was the wheat tour results. The crop sizes in NE and OK down from last year; but the yield in Kansas wasn’t down nearly as much as some had thought. Yield was pegged at 41.1 in Kansas versus 42.3 on the 5 year average and production was pegged at 313 million bushels versus 382 last year. Smaller but not really what the bull’s were looking for. One thing that many on the tour mentioned was the yields they gave were potential; meaning mother nature could change things a little bit. Plus much of the crop is early so their measuring method likely lead to overstated yields. Many areas failed to quantify how much frost damage was done. In my opinion I think we see a smaller crop once the combines roll; but for marketing and risk management we need to realize that we will have a huge carry over going into this crop. We will need solid demand or a wreck in one or two of the other countries that we compete with for exports. Our crop failure by itself likely isn’t enough to warrant long term prices substanitly higher then we presently are. We will need money flow or the funds to get interested and we will need some demand.
The birdseed market was a little quieter today then the past couple. Many buyers seem to have nearby needs covered; but I have also heard that orders and business has really picked up lately.
Winter wheat and spring wheat basis is a little defensive as mills just don’t need anything nearby and we are not exporting much. Producers focusing on planting or trying to plant is keep basis supportive for wheat and the birdseed markets but not enough for us to see tons of strength either.
Don’t forget we are still offering free delayed price for most old crop grain.
Also hearing many are replanting some of the failed winter wheat to spring wheat. Keep in mind that at times spring wheat buyers can get rather picky on WOCL; more than the winter wheat buyers.
Please give us a call if there is anything we can do for you.
Thanks
Jeremey Frost
Grain Merchandiser
Midwest Cooperatives
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