by Tim Hannagan
Mid-Month
3/12/2010
MID-MONTH
Wednesday’s U.S.D.A. monthly crop report was viewed by most as a “yawner” and would be forgotten 10 minutes after the open. Reason, the changes from the month prior were so small you wonder why the government bothers. That is when trader analysts like me come in and put the report under a microscope and look for the hidden message.
With wheat, there was no message other than ending-stocks got fatter. They raised wheat’s ending-stocks come the start of wheat’s new marketing year June 1, to 1.001 billion bushels versus 981 m.b. last month and 657 m.b. a year ago. The ending-stocks remain a bearish fundamental for at least a year or more but market strength will still come from time to time as trend-following funds build record short positions held, then buy them back.
Soybean production for 2009 was lowered 2 m.b. to 3.359 b.b. Why did they bother, that much falls off the truck on the way from the fields. Our 2008 production was 2.967. They raised export projections and cut ending-stocks 20m.b. come the start of bean’s new marketing year, Septemeber 1, to 190 m.b. versus 210 last month and down for the third consecutive month and the fourth consecutive year of under estimating world demand for beans and high protein crops. This is the hidden key. Even with all the talk of record South American production and potentially more bean acres seeded this year, demand continues to out-pace production. The 190 m.b. number is still far too high considering Asian and European protein needs.
Corn production was pegged at 13.131 b.b.; down 20 m.b. from the last report; and they raised ending-stocks 80 m.b. to 1.799 b.b. by cutting export projections. Don’t be fooled by that perception. The government for the first quarter was too high on demand prospects even though demand is over the year prior. Here’s the hidden key in the report. They left China’s production on corn unchanged at 155 M.T. for the second consecutive month, while drought in China’s key corn area has private local groups with corn production no higher than 140 M.T. and dropping. This sets up China to go from being an exporter of corn to surrounding Asian neighbors and becoming an importer. China has set for 2010 a sharp increase in hog and chicken populations in need of more corn. They intend to top off their strategic corn reserve as billions were spent to build grain storage to insure corn needs are met and they have an increase on ethanol production on the year. This all sets up exports to China and their neighbors filling needs by turning to the U.S. The last three quarters of the year will reflect this. Asian markets have increased the U.S. corn imports for the fourth consecutive week as of our last weekly export sales report, suggesting the switch over has begun. Remember, the government does not project trends. They begin the marketing year with a thought process on production and ending-stocks due to useage, based on 5 and 10-year trends. Then each month they make adjustments based on current news reality. This is where I come in. I project the trend before the government reports reflect the reality.
The next big report comes with the March 31, planted-acreage report. This may be considered the biggest in many years. Trade guesses as to acres being planted of each crop should have wide ranges creating great fear ahead of the report’s release. This at some point will have shorts buying back positions and speculators entering long as prices are down. Question is: At what point does a near-term low set in and strength follow?
Technicals read like this:
May corn finds support at 3.60; a close under and we push to 3.50; and then 3.34 worst-case scenario on a break. Resistance is 3.74. A close over and 3.88 is next stop. Follow these chart selections closely when putting on new positions.
May beans entered this week with major chart support at 9.30; a close under and 9.10; then 8.90 worst-case scenario before the March 31 report. Resistance is 9.65; a close over takes us to 9.75; then 10.00
May wheat needs a close over 4.94 to turn chart-friendly. Support lies at 4.72.
Tim Hannagan
PFGBEST Research Team
800.563.9510
thannagan@pfgbest.com
PRODUCTION NEXT
3/9/2010
Our weekly export inspection report came out Monday, almost ignored as the market gets ready for the Wednesday 7:30 am Central Time U.S.D.A. crop report.
Let’s review them anyway, so we are on top of demand fundamentals. Lowly wheat inspections were 20.4 million bushels inspected for near-term export versus 19 the week prior; 14 a year ago; and four-week average of 17.2 m.b. Too much wheat in inventory at 981 m.b. to move off weak demand numbers like that. Demand remains a neutral force for pricing.
Corn inspections were 34 m.b., versus 42 the week prior; 43 a year ago; and four-week average of 31 m.b. year-to-date inspections are up 20 m.b. I like the increase on the four-week average as we continue to see an increasing export market the last four weeks as Asian markets pick up buying as local neighbor China exits the export market. Keep in mind, exports are always down the week of U.S.D.A. reports as importers await fresh statistics for their near and long-term marketing strategies.
Bean inspections were 30.9 m.b., versus 40.4 the week prior; 31.0 a year ago; and four-week average of 38 m.b. Of the total, China was in for 23.6 m.b., the second highest weekly purchase of the last six weeks. It’s a good number on a crop report week.
Tomorrow, Wednesday, March 10, 2010, the U.S.D.A. releases its monthly crop report with final 2009 production numbers for corn and beans with adjustments to ending-stocks of all the grain markets.
On the PFGBest.com web site, you can pull up my last Friday’s report in which I give price projections that could occur for either a bullish or bearish report. But, unless there is a surprise outside the average and range of industry expectations, we look to come in Thursday, the day after, and say “what report?” The market will quickly forget it, refocus on outside markets for daily direction and begin to get ready for the big report on March 31, when the government survey of farmers tells us how many acres of each grain farmers intend to plant. The March 31 report is four times more important than Wednesday, March 10 report.
Tim Hannagan
PFGBEST Research Team
800.563.9510
thannagan@pfgbest.com
REPORT NO. 1 – WEDNESDAY
3/5/2010
Thursday’s weekly export sales report showed wheat sales were 101 T.M.T.down 73%from the week prior, 77% under our four-week average of 437 and a year ago of 285 T.M.T. Recent Asian business disappeared. We had been seeing several hundred thousand metric tons weekly the last month. Not an issue as demand doesn’t turn to U.S. ports until late April and May, as new crop business enters with our late May through June harvest of our winter wheat crop.
Soybean sales were 182 T.M.T. down 24% from the week prior; and 36 % under our four-week average. The only positive in it was we were higher than a year ago. The negative was China was absent for the second time in three weeks as demand shifts to South American ports for cheaper seasonal beans. Brazil is getting close to 40% harvested now and even though grain moves slowly from field to port, its coming in and at cheaper prices to the U.S. As to prior weekly sales, we shipped out of U.S. ports 1.079 M.M.T. with China taking 646 T.M.T.
Corn sales continue to build. Sales were 761 T.M.T., up 90% from the week prior, and just over our four-week average. The key is Asian markets were in for 638 T.M.T., up for the fifth consecutive week. It has been my thought that surrounding Asian neighbors of China will be forced to buy all their corn needs from the U.S. as China goes from being an exporter of corn to an importer in 2010. Reasons: drought has cut their recent crop appreciably. While they are expanding their hog and chicken populations to meet mandated protein needs, requiring more corn to stay home. They continue to expand their corn to ethanol mandate and top off the building of a strategic corn reserve all setting up China to ignore its neighbors, setting up U.S. ports to ship record corn tonnage by years end.
Demand-side fundamentals go to the sidelines Monday and Tuesday, as they will use those two days to get positioned and postured for the Wednesday, 7:30am Central Time U.S.D.A. monthly crop report.
Here’s a review of the pre-report trade estimates of the largest brokerage and private analytical firms.
The average corn production estimate for our past 2009 crop is 13.088 billion bushels versus the last report on production in January of 13.151 b.b. The range of estimates are from 12.838 to 13.158. Anything under the average of 13.088, and we open higher. If we come in at or under the low estimate of 12.838 and May futures will push up to fill the chart gap at 4.04. A bearish report and May could test the trend line at 3.66.
The average pre-report estimate for our 2009 bean production is 3.349 b.b., versus the January report of 3.361. The range is 3.219 to 3.365. Like corn, bean numbers too look to have a friendly to bullish stance. If we come in under the average guess of 3.349, we will push May futures to test the 9.75 resistance level. Anything at or under the low estimate and May breaks resistance and pushes to 10.00 even. A bearish report and May tests 9.30 with potentially 9.10.
Wheat doesn’t have any production numbers on this report, it is all about corn and beans, but wheat will follow them up or down. The risk for wheat traders Monday and Tuesday comes if traders with low production estimates on corn and beans buy those two markets long and decide to sell wheat as a short position hedge. Though wheat has no production numbers on this report, it does have a major interest in the March 31 planting intension report. I would suspect that May wheat will push through its major resistance of 5.24 going into that March 31 report as trend-following funds short 64,000 contracts, 9,000 under a record short position, begin to buy back those shorts on fear the report will show a sharp drop in spring wheat acres to be planted in favor of more corn and beans. May wheat could see 5.50 area ahead of or just on and after the report. For now, focus on Wednesday.
Tim Hannagan
PFGBEST Research Team
800.563.9510
thannagan@pfgbest.com
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