The grains markets have looked tired to start the week. An initial higher trade last night was met again with modest selling pressure. Scattered rains can be found around several parts of the country this morning, however coverage is lacking. The 1-3 day precipitation map continues to show rains in far northern areas of the country and only small amounts across the majority of the Corn Belt. Heat will persist at least through the end of the week.
FC Stone pegged the US corn crop at 11.043bil/bu using a 124.3bpa yield. They pegged the soybean crop at 2.73bil/bu using a 36.2bpa yield. Most traders don’t believe that the USDA will drop production to these levels on the August report, however we wouldn’t rule it out.
Export Sales this morning at 7:30am CST, pre-report estimates:
• Wheat 375,000 -600,000mt
• Corn 0 -250,000mt
• Soybeans 300,000 – 500,000mt
Last week, we saw net cancellations in corn export sales for both old and new crop. Analysts are again looking for poor numbers this week as the rationing process moves forward.
Ethanol output last week rebounded from the previous week’s record low. Output was up 13,000bpd at 809,000bpd; still a weak number but better than last week. Ethanol prices were up 18% in the month of July, the biggest monthly increase since June 2008. We can now add Cargill CEO Gregory Page to the list of executives who have spoken out against the ethanol mandate. Today, a news conference will be held to criticize the Renewable Fuel Standard. Of the 435 total House members, 136 have signed a letter calling for a reduction of corn usage for ethanol.
The biggest threat to longs in the corn, soybean or wheat market right now would be a policy change as rain events continue to disappoint farmers across the country. Corn nearly traded limit-down a few weeks ago on rumors that the ethanol mandate would be reduced by 20%. Any confirmation of actual political action could send our grain markets dollars lower in a heartbeat. As we don’t believe that any policy change will take place, we remain conservatively bullish the corn market in particular.
Hedgers: Cash sales of the ’12 crop are preferred to using futures/options IF you’re sure that you’ll have the bushels. We’d prefer to use our margin money to hedge the ’13 crop on a move above $6.50/Dec13 corn. There is no carry in the corn market, and we continue to trade near all-time highs. There is no reason to store the ’12 crop now.