Money flow and headline trading is still the major guiding force in grains right now.  The USDA did offer an updated look at the US production and supply & demand tables this week as well.  For the most part the report was well within inline with expectations.  US corn carryout dropped slightly to 2.32 billion bushels from 2.355 billion.  The drop in stocks came from a 35 million bushel increase in the Food/Seed/Industrial category.  Of the 35 million increase, 25 million is expected to come from increased ethanol grind.  The weekly ethanol figures came in on Wednesday showing a slight drop in production week over week, but still very near record production levels set in the past few week.  Soybean carryout was left unchanged for the month.

Two big questions on the mind of producers everywhere is why have we rallied and how long will it last?  The easy answer to the first part is money flow.  Fundamentals of ample worldwide stocks have taken a back seat to funds wanting to get into commodities for a multitude of reasons from fears of inflation to too much rain in Argentina and strong demand.  That last part is what makes predicting a top, or the end of the rally, so difficult.  When funds decide to take profit, it is very possible we will see a turn lower for a period of time where fundamentals will regain influence.

Through this rally one would typically think local basis would slip as futures and basis are usually inversely related.  However, this week was atypical.  As corn gain nearly a time in the futures, local basis has only lost a couple cents.  Producer movement has been slow on the premise we have seen these prices before.  We need to make another jump higher for the next big round of producer sales.  Soybeans were in a similar boat.

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CHS – Rochester Grain Team
Kasson: 507-634-7545 ext 7
Ostrander: 507-657-2234

This Material has been prepared by a sales or trading employee or agent of CHS and should be considered a solicitation.  The information contained in this presentation is taken from sources which we believe to be reliable, but is not guaranteed by us as to accuracy or completeness and is sent to you for information purposes only.  There is a risk of loss when trading commodity futures and options.  CHS bases its recommendations solely on the judgment of CHS personnel.

Headline traders have ruled the trade lately.  Algorithms have been watching South America weather headlines as well as the transition of power in Washington D.C. which has been impacting the markets at times as well.   These headline traders and fund money flow can be difficult to follow let alone predict.  Overall the market is very emotional right now.

Let’s look at the fundamentals of the market, starting with old crop.  There is ample supplies of both corn and beans in the US.  While corn export demand is running well above year ago levels, soybean exports have slowed.  This is in part due to the Chinese Lunar holiday this week, but also due to South America harvest starting in the north which ships piling up at ports waiting to be loaded.  Old crop corn is also supported by record levels of ethanol grind.  On the flip side, soybean crush is steady but margins are slim due to poor domestic soybean meal demand.  In both cases, old crop basis is likely to suffer as a result of the ample stocks; at some point the grain needs to move to market, buyers know this and basis will react accordingly.

On to new crop.  The market is anticipating a 4 million acre switch from corn to bean production.  Assuming trend line yields, the corn balance sheet can sustain a 4 million acres loss.  Soybeans however, has a bigger challenge sustaining reasonable balance sheet levels with only a 4 million acre gain.  Some have argued it could take a 6 million increase in soybean acres to maintain current stocks to use levels.  The market’s job now is to determine what gets planted.  This annual acreage debate will only gain attention in the coming weeks.

Read Full Market Update

CHS – Rochester Grain Team
Kasson: 507-634-7545 ext 7
Ostrander: 507-657-2234

This Material has been prepared by a sales or trading employee or agent of CHS and should be considered a solicitation.  The information contained in this presentation is taken from sources which we believe to be reliable, but is not guaranteed by us as to accuracy or completeness and is sent to you for information purposes only.  There is a risk of loss when trading commodity futures and options.  CHS bases its recommendations solely on the judgment of CHS personnel.