Commodities have had a good run in the past two years. Some of the stretching out on the bars looks a lot like three years ago.
When we look at the BIG picture, we see total grain stocks tightening up from last year in both S/U ration and total tonnes. But, this still isn’t as tight as where we were the last time prices spiked, as shonwn on the next page.
Current commodity prices are benefiting from all the ships that were built during the high prices and are now looking for cargo.
No changes to this, but in a later slide we take a look at exports, which may not get to USDA projections.
Note that even though ending stocks ended up the same, they were increased for HRSW and decreased for White. Durum ending stocks are burdensome. It takes a number less than 30 million to make it work.
Of course, most of us are still remembering the 2008 run up. But maybe we should also look at the 2008 down side!
Wheat export SALES to date have been running at about the pace needed to hit USDA’s 420 mil bu increase in exports, although we are running out of time, and most of time sales slow down from here to May 31 st . Not that we are not nearly as strong as 2008.
However, at this point we are not shipping fast enough to meet that goal. Is that a port issue, or were buyers getting coverage and waiting to see the Aussie/Argie wheat crop before making shipping decisions? We could see US wheat stocks getting bumped back over 900,000 million in some report coming up. (plus 80 million) That would wipe out the “need” for about 2 million acres of wheat. Not trying to be a big, bad bear – but heads up!
Basis is reflecting strong demand for the high quality wheat. You are still seeing the sharp protein discounts as a result.
The HRWW is also improving some, but still not back to last year or historical
Not sure why the Soft Red is so strong. Replacement for the Black Sea wheat going to the Middle Eastern/North African countries?
The bottom of this chart shows the “commitment of traders” in a graphical form. We see large specs back to high positions they had last fall, and back in spring of 2008. Will they add more at this point? Not that when they switch positions, the commercials take the buy side and prices tend to soften and/or fall.
Different source (Farm Futures) showing the large long position in Chicago wheat.
SRW has carry. This is normally considered bearish, but it may also reflect that funds are doing a better job of spreading out their buying as opposed to always using the front month and rolling to the next one at delivery. But you can see when it was rallying sharply last summer, the carry disappeared, so carry is still indicative of sentiment!
In the MPLS market, there has been no carry since early December when the Aussie crop started having flooding issues. But keep an eye on this!
In the nearby contract, we have traded back to a gap, and to the first retracement drawn off the $20 high, ignoring the $25 spike. If we want to be more bullish, a breakthrough from here could take us through the gap to a test of an old high, which is also the 38.2% retrace from the $25 high or 50% retracement from the $20 high. Can we get there? Remember this is old crop, not new crop. But unlike 2008, old crop is hanging with new crop. In 2008 there was an $11.00 difference at the peak.
Corn is where the trade got surprised. Ethanol and other domestic use was increased by 70 mil bu! Ethanol users must have done a good job of contracting last year, because they keep buying corn. However, just like wheat, we need to keep an eye on those export projections. The US corn shortage is more dramatic then the rest of the world, and Australia will be adding an additional 200 mil bu of feed wheat unexpectedly to the feed supply.
Corn sales are stronger than last year as a percent, so that is good, but not nearly as strong as 2008 during the last bull market. And shipments are lagging, too. Corn does have some time to catch up – 6.5 months.
Corn basis seems to reflect that either domestic end users were well-covered with contracts, or famers are content with the overall price and are bringing corn steadily to market.
Gulf basis is doing somewhat better.
In 2007/08 it was wheat that was the shortest crop. In 2010/11 it is corn, and the futures reflect that.
The next technical objective for old crop corn is that old high of about 7.65.
We see funds have huge long positions in corn already. After a slight sell off last November, they came back strong with new buying. That hasn’t let up so far this year. How much more will they add? Note that when they reduce their long positions, the market always goes down. Every drop in price above matches a drop in the Managed Money position.
A different source, still showing a HUGE long position in corn.
Corn also has a big carry spread from old crop to new crop, similar to wheat in 2008. Does that mean the trade is more worried about old crop then new crop? Do they think there will be enough corn acres for 2011? Interestingly, we WON’T run out of 2010 corn. Close but not out. The problem is getting a decent 2011 crop! Compare this to HRSW where there isn’t a huge concern about either old crop supply or new crop acreage just yet, but there is no carry???!
Traders were a little surprised that USDA didn’t increase soybean export projections and cut ending stocks. In fact they left everything alone for soybeans.
It is important to remember that global oilseeds are not incredibly bullish. Chinese demand and US soybean crops are, but there are a lot of other factors out there. Take a look at the chart above and compare ending stocks of meals with oils! It is oil that is the area of shortage, not because of decreased supply, but huge increases in demand. Takes a lot of oil to run fast food restaurants and process food! Oil meals is being partially offset by ethanol DDGs. This is starting to create problems for crushers who are trying to meet oil demand but can’t move the meal fast enough. By the way, Australia had record large crop of canola, and large crop of sunflowers and cottonseed (as well as rice).
Take a look at Soybean ending stocks in these two years compared to this year on the next chart.
The last time beans were in the teens, we had a world S/U of 14.4%. Today we are at 16.4%. Yes that is a decline from last year. Remember that a lot of the bullishness was based on the Argentine crop. They got the rains they needed, and while USDA cut their production, it is not as much as the trade expected. There is talk of another cut of 1 mmt, but there is also talk of increasing Brazil by 1 mmt. It appears as though SA may be on their way to another huge crop.
Export sales are very strong. Actual shipments have been lagging a bit, but there is time to catch up.
Interior basis bids for beans have been somewhat stronger than corn, but nothing like you would expect with strong demand and not enough beans to go around.
Gulf export bids are better. But since shipments are barely on pace, and interior basis isn’t all that strong, is it the futures price moving the beans to market?
The next technical objectives for soybeans are the old $15.00 high and then $16.00 (round number) and the old high at about 16.60.
We are seeing very big long fund positions in beans just like everything else. Maybe even stronger in beans, relative to last fall and 2008.
Note the largest long position in beans ever held by these traders.
Like corn, the old crop has been trading at a premium to the new crop. But unlike corn, that spread is narrowing. So is this a factor of lessening concern for old crop, or increasing concern for new crop?
Take a look at the ending cotton stocks. Makes sense why it has gone up in price. But like wheat, note that the price farmers receive hasn’t gone up near as much as the futures! Current projections for cotton acres are an increase to about 12.5 million. Acres are going up all over the world, so by this time next year cotton prices are likely to have fallen.
Chinese drought made the news. Remember that their wheat isn’t out of dormancy until early March. This will only be a story if they fail to get rain then, which is when it normally starts. Also, keep in mind that a lot of the Chinese wheat is irrigated, though water is short. If they have a drought develop, it will be bullish because of the memory of last year. China has enough wheat on hand to get by for a year with a short crop --- But they have enough cash on hand to buy whatever they want at any price and that may make other buyers start to cover their needs sooner rather than later!
Take a look at this chart from Mr. Gulke. Note that between 2006 and the sharp corn planting increase in 2007 we added about 7 million acres. Then with the price rally in the spring of 2008, we came up with another 4.5 million acres! Where does all that land come from? Take a look at the drop of “total cropped” acres from 2008 to 2011. Umm, Jerry, do you think we may be able to find those 7 million acres again?