KCG FUTURES-PM GRAIN FUTURES COMMENTS

KCG FUTURES   PM GRAIN FUTURES COMMENTS  

 

For the majority of August the grain futures market has been fixated on the supply side of the market – on rationing of tight old crop bean and corn supplies as well as the prospect of eroding new crop bean and corn yields.  This generated at $2.50 new crop bean futures rally accompanied by a 60 cent corn rally and 40 cent wheat rally.

When futures markets opened Monday night, the focus continued to be on “supply” and the perception that eastern Iowa and north central Illinois had not received the hoped for rains needed to support yields over the weekend.   The grain futures market gapped open higher and traded bean meal at up the $20 limit and SX almost 50 cents higher – and also pulled corn and wheat higher. Futures continued to trade significantly higher until the futures market reopened at 8:30 am after the “pause”.  Selling interest appeared quickly, and soon the corn and wheat futures were trading lower on the day.  Grain futures spent the day with beans and meal trading significantly higher while the corn and wheat traded 5-10 cents lower.  The beans and meal traded near last Monday’s runaway highs while the corn and wheat traded below last Monday’s lows.

What happened?   The Bean/Corn ratio climbed another 0.10% to 2.92% in an effort to price in the need to ration tight old and new crop bean supplies.  With US soybean carryover as a percent of use in the single digits both last year and in 2013-14, the market needs to use all its tools to encourage loading of South American bean vessels, encourage prompt harvesting of US beans, and encourage planting more bean acres in South America this fall.  In contrast, supplies of wheat and corn are much more readily available than are bean supplies and this is channeling mcuh less buying energy into corn and wheat futures and allowing them to lose to bean futures prices.

Tight US bean supplies are not the only factor influencing futures prices.  On the demand side of the bean market is concern that China maybe “overbought” on nearby cash bean supplies, other world buyers may have accumulated a significant “too arrive” cushion that will allow them to “wait and see” rather than chase bean prices higher, and the US may have lots of competition for market share with other producing nations.  In addition, corn and bean harvest has begun in the southern US and the pace of harvest will improve over the next several weeks.

This afternoon’s Weekly Quality and Progress Report indicated a significant reduction in bean and corn yield prospects – pretty much as expected.  Good to Excellent ratings for corn dropped to 56% from 59% last week – with Iowa losing more than Illinois.  Bean ratings dropped to 54% Good to Excellent from 58% last week – also more yield loss in Iowa than Illinois.

Has the market priced this in?  The last two years, high prices were set during the “transition” from old crop to new crop when there was the most uncertainty about available supplies.  At above $14 on the SX and $5 on the CZ we found selling interest last week and again today.  It appears that the futures market is just as focused on the availability of relatively cheap corn and wheat supplies as it on tight bean stocks, and the price relationships that are needed to keep marketing pipelines appropriately full.

Expect erratic price action in the futures and spreads as well as cash market basis levels.

–       Helen Pound

GRAIN FUTURES CLOSING PRICES AND CHANGE

Close – Rounded

 

CZ3

SX3

SMZ3

BOZ3

WZ3

KWZ3

MWZ3

Today’s Close

$4.75

$13.87

$439

$0.4419

$6.47

$6.99

$7.25

     Change

-7

+29

+15

-0.0010

-7

-5

-5

Total Open Interest

1,068,720

587,862

267,981

283,025

358,837

137,820

32,355

     Change

-2,608

+8,449

-3,427

-2,370

-1,605

+323

-161

OVERNIGHT PERCENT CHANGE IN FUTURES VALUE

Grains

Corn

Soybeans

Soy Meal

Soy Oil

Wheat

KC Wheat

MN Wheat

September, 2013

+0.6 %

+0.8 %

%

+3.7 %

%

-0.2 %

-1.1 %

-0.6 %

-2.3 %

December, 2013

-1.4 %

+2.2 %

+3.6 %

-0.2 %

-1.0 %

-0.6 %

-0.7 %

July, 2014

-1.3 %

+1.1 %

+1.6 %

-0.5 %

-0.9 %

-0.8 %

-1.0 %

OVERNIGHT PERCENT CHANGE IN FUTURES VALUE

Macros

 

Dollar

10 Year

S&P 500

Crude Oil

Copper

Gold

Silver

Percent Daily Change

+0.3 %

-0.6 %

+0.1 %

+0.9 %

+2.3 %

+0.2 %

+3.8 %

TERM STRUCTURE

Carries (Inverses) – Rounded

 

Corn

Soybeans

Soy meal

Soy Oil

Wheat

KC Wheat

MN Wheat

September – December

(22 1/2)

(48 3/4)

(46.7)

0.0035

11

1

22

     Percent Full Carry

(110 %)

(280 %)

(474 %)

52 %

54 %

4 %

80 %

December – July 2014

27

(64)

(32.5)

0.0075

13

2

25

     Percent Full Carry

57 %

(89 %)

(141 %)

48 %

28 %

4 %

39 %

INTERMARKET SPREADS

                                                                    Rounded

 

W-C

S-W

S-C

S/C

BC*

MW-W

MW-KW

KW-W

September

139

799

938

2.88 %

115

67

7

60

December

172

740

912

2.92 %

65

78

26

52

July 2014

158

662

820

2.63 %

67

89

48

42

*BC = Synthetic Soybean Crush
COMPARISON OF CURRENT FUTURES PRICE AND JANUARY (F) CROP REPORT LOWS – percent of Low
  Low (F)

8.22

8.23

Monday

8.26

8.27

8.28

8.29

8.30

Tuesday

9.03

CU3

592

82 %

84 %

87 %

84 %

85 %

84 %

84 %

84 %

CZ3

570

81 %

82 %

88 %

85 %

84 %

84 %

85 %

83 %

CN4

592

83 %

84 %

89 %

86 %

86 %

86 %

86 %

85 %

 

 

OU3

350

109 %

104 %

101 %

104 %

107 %

113 %

112 %

108%

OZ3

338

98 %

98 %

102 %

103 %

103 %

103 %

101 %

98 %

ON4

409

80 %

79 %

84 %

85 %

85 %

83 %

82 %

79 %

 

 

WU3

765

82 %

83 %

86 %

85 %

85 %

84 %

84 %

83 %

WZ3

779

82 %

83 %

86 %

85 %

85 %

84 %

84 %

83 %

WN4

775

85 %

85 %

88 %

87 %

87 %

86 %

86 %

85 %

 

 

KWU3

876

85 %

85 %

87 %

87 %

87 %

86 %

86 %

85 %

KWZ3

830

84 %

84 %

86 %

86 %

86 %

85 %

85 %

84 %

KWN4

790

88 %

88 %

91 %

90 %

90 %

89 %

90 %

89 %

 

 

MWU3

860

84 %

83 %

85 %

85 %

85 %

84 %

84 %

82 %

MWZ3

858

85 %

84 %

86 %

86 %

86 %

85 %

85 %

84 %

MWN4

890

85 %

84 %

86 %

86 %

86 %

85 %

85 %

84 %

 

 

SU3

1288

103 %

106 %

111 %

110 %

111 %

111 %

111 %

111 %

SX3

1259

102 %

105 %

110 %

109 %

109 %

109 %

108 %

110 %

SN4

1287

97 %

99 %

102 %

101 %

102 %

101 %

102 %

103 %

 

 

SMU3

369

112 %

117 %

124 %

124 %

126 %

127 %

127 %

132 %

SMZ3

353

113 %

119 %

124 %

122 %

122 %

122 %

120 %

124 %

SMN4

365

104 %

107 %

110 %

108 %

109 %

109 %

110 %

111 %

 

 

BOU3 49.81

85 %

86 %

89 %

89 %

89 %

88 %

88 %

88 %

BOZ3 49.00

87 %

88 %

92 %

91 %

91 %

90 %

90 %

90 %

BON4 49.92

87 %

88 %

91 %

91 %

92 %

90 %

91 %

90 %

 

  • +   Jan lows occurred in anticipation of bearish Production, Stocks, Winter Wheat Seeding, and WASDE reports.  Instead the Jan reports were friendlier than expected, with less than expected US stocks and tighter world carryover.
  • –  The USDA February report showed just a few changes – more wheat feeding – but was viewed as “not bullish”.  South American and US crop growing weather improved during February.
  • -/+  The feature in the USDA March report was an increase of 100 mln bu of US corn feeding offset by 75 million bushels fewer US corn exports and an additional 25 million bushels of US corn imports.
  •   The March Quarterly Stocks report was a bearish surprise with grain stocks above estimates – and corn stocks well above trade estimates forcing corn limit down.
  • -/+  The April S+D report showed World carryover for corn, beans and wheat above the high end of the analysts’ range of guesses.  US carryover didn’t increase as much as suggested by the Stocks report – with bean carryover unchanged at pipeline needs.  Cool, wet weather delayed planting and reduced HRW quality.
  •   The May S+D report showed increased South American corn production, as well as increased South American old crop corn and bean carryover as China reduced old crop imports.  US old crop bean and corn stocks continue to be exceedingly tight.  New crop US and World corn, bean and wheat carryover were larger than the average guesses.  Planting weather is erratic, and analysts expect some corn, bean and spring wheat acres to go unplanted.
  • -/+  The June S+D report showed another increase in ‘12-13 South American corn production, but a decrease in bean production.  The ‘13-14 S+D showed reduced Ukraine and Russian wheat production, as well as lower US corn production.  World wheat supplies continue to be abundant, while world corn and bean supplies are expected to become more comfortable as US new crop is harvested this fall.  In contrast, US bean supplies are expected to remain exceedingly tight.
  • +   The 6.28.13 Quarterly Stocks Report was a bullish surprise which showed less than expected corn and bean stocks with greater than expected March-May use.  
  • –  The 6.28.13 Acreage Report was a bearish surprise which showed harvested corn acres up 2% from last year and up 1% for beans.  In addition, yields are expected to be much improved over last year.  Harvested wheat acres are expected to be down 7% from last year – with many less HRW and HRS acres, but many more SRW acres.  This was somewhat offset by heavy old crop HRW and HRS stocks and less abundant SRW stocks.
  • -/+   The July S+D was the most neutral report that the USDA has issued in a while, with changes mostly well within the range of guesses.  New crop US carryover for soybeans remains quite tight (but more abundant than old crop) and corn remains tight (but much more abundant than old crop), while wheat carryover is finally moving back to more normal levels (much less than the overly abundant carryover of the past several years).  Improving weather has supported new crop quality and progress, and weighed on prices. 
  • +     The August S+D Report was a bullish surprise as the USDA cut yield and production estimates for US new crop corn and beans. The result was reduced US and World carryout.  Carryout as a percent of use for new crop beans dropped to 6% (-2%) – indicating exceedingly tight new crop supplies but still better than the 2012-13 C/U% of 4%.  Corn C/U% is also tight at 14 %.  Tight stocks create volatile responses to changes in the weather forecast.  Last Half August US weather turned hot and dry, and sparked a short covering rally.