Saturday, September 22, Notes From Al

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1 Get This Newsletter Every Saturday from Al Kluis Commodities..."Your Markets, Right Now"...AlKluis.com Saturday, September 22, 2012 Notes From Al Grain prices fell sharply lower this week for several reasons: 1. Yield reports--especially for soybeans--are coming in much better than had been expected. 2. Disappointing Chinese and European manufacturing reports, and another disappointing US jobless claims report, all brought into question the strength of the global economic recovery. 3. Good rain fell across the dry areas of northern Brazil. 4. The US dollar was strong, gaining 0.47 points this week. 5. Crude oil dropped by $ 5.92 per barrel. Inventories are building, and gasoline demand is weakening. Month-end and end-of-the-quarter selling should create a significant low and buying opportunity. The seasonal high came for December 2012 Corn at $8.49 on August 10, For soybeans, the November 2012 Soybean futures price peaked at $17.60 on September 4, 2012 at $ With the drop this week, corn prices are down 13% and soybeans are 10% lower. I look for a seasonal low to develop in corn and soybeans by the week of October 5, 2012 in both corn and soybeans. The USDA announced that it was moving the time of the release of the major USDA crop reports from 7:30 AM CT to 11:00 AM CT starting in January. The USDA had sought input on the best time to release the reports and is making this change after reviewing that input. The grain markets will be a lot more liquid at 11:00 AM than they have been with the early morning crop report releases like we have had in the last few months. Meanwhile, this coming Friday morning, September 28, we will have the Coffee and Market Webinar starting at 7:15 AM. Cory Bratland and I will explain what we expect in the USDA Quarterly Grain Stocks report; we will review the report right as it is released at 7:30 AM and see the instant market reaction. Plan to log in to our Last Thursday subscriber-only Webinar on Thursday September 27, 2012 at 8:00 PM CT. Cory Bratland and I will explain what we expect in the USDA Grain Stocks report the next morning, and also explain some call option strategies for farmers who want to sell all of their cash corn and soybeans now and retain ownership with call options. 1

2 Al s Market Thermometers The grain markets closed sharply lower this week on improved yield reports, massive commodity fund liquidation and month-end and end-of-quarter selling. Here's the updated set of the most important market factors affecting price now... Corn Bullish I look for future USDA Crop production reports to drop harvested corn acres by 2 to 3 million acres. Lower prices will bring in aggressive export purchases. Wheat has moved higher and is now priced out of the feed grain market. Bearish The large increase in crop corn ending stocks. Better than expected yields in the central and northern Corn Belt. Slow corn exports and increasing losses in the hog industry. The possibility of corn imports from Brazil into the SE US poultry markets Projections for 97 million acres of corn and a 14 billion bushel corn crop in 2013 from Informa on Friday. Soybeans Bullish Indications of a 23 MMT drop in soybean production in South America last year. Indications that harvested acres of soybeans may drop by 1 to 2 million acres in future USDA crop production report. The USDA reduction of ending stocks for and in the recent USDA supply/demand reports. Surging meal demand as ethanol plants produce less DDG s. Bearish Better than expected yields in the central and northern Corn Belt. Widespread rain across dry areas of Brazil this week. Global economic uncertainty. The massive long fund position in the soybean market. The potential for record soybean supplies from South America in

3 Wheat Bullish A large potential reduction in the wheat crop in Europe. Projections for a large drop in wheat acreage in Argentina this year. The USDA projection for lower global ending stocks of wheat. Dry weather and reduced wheat crops in the Ukraine and Russia. Bearish Wheat is priced high enough to be out of the feed grain market through out the world. Improved planting conditions and rain in the dry areas of the southern plains. Dry weather in Australia that could take their crop down by 20% from last year. 3

4 Chart of the Week: Crude oil About this chart: The daily crude oil market fell sharply lower this week with prices testing support at $90.66 per barrel. The combination of increased crude oil stocks and reduced gasoline demand put pressure on the energy markets this week. If crude oil takes out support at $90.66, look for a sell off down to long term support at $85.00 to $ What this means to you: You should have bought your fall 2012 fuel needs on our recommendation from late June of Buy hand-to-mouth right now. Odds are you will be able to buy your spring fuel needs at a lower price in the first or second quarter of What To Watch News and events that could move the markets. Watch for a cycle low in the corn and soybean markets between September 25 and October 5. I have been surprised at the extreme sell-off in the soybean and corn market the last two weeks. I believe the markets are setting up for an early seasonal low, possibly within the next two weeks. Livestock feeders and anyone who needs to buy corn, soybeans, or soybean meal should begin checking on cash bids now. Be ready to buy when we send out the text message Action Alert. That will also be a time to get settled up with your grain elevator if you are oversold on your production this year. 4

5 Watch weather in Brazil: Planting in Argentina and southern Brazil is off to a good start, but it is about 2 weeks behind normal in most areas. My current estimate is that about 10% of the corn is planted in Brazil, and 5% in Argentina. Soybean planting is just starting in Brazil and may be at 1%, while Argentine farmers hope to start planting soybeans next week. Rain across many of the dry areas of northern Brazil was one of the market factors that dropped soybean prices sharply lower this week. Watch harvest progress in the US: Harvest is expected to be at about 40% complete in corn and up to about 30% for soybeans. Many farmers in the central and southern Corn Belt will be done with the corn harvest next week. Warm dry conditions are allowing the harvest to move ahead at a record pace. Once the harvest is more than 50% complete, you will often see basis levels start to improve and cash markets bottom. This will often indicate a seasonal low in the corn and soybean markets. Watch the Friday Sept 28 USDA Grain Stocks report: This should be a real challenge for the USDA again this year. The September Grain Stocks report measures the amount of corn ending stocks at the end of August, which is carried into the next marketing year. With the early harvest in 2012, a huge amount of 2012 corn was harvested and placed in grain elevators by the end of August. The last USDA supply/demand report projected corn ending stocks at billion bushels, and soybean ending stocks at 130 million bushels. We could see a much larger corn number if any of the 2012 crop corn is reported as 2011 inventory. The Grain Stocks report has created some extreme market volatility in the last two years; I expect the same again Friday. We will have a live Coffee and Markets Webinar on Friday September 28 starting at 7:15 AM central. This webinar will provide you with what we expect the grain stocks to be, what the USDA reports at 7:30 AM and the instant market reaction. What To Do Now Specific recommendations for sales, hedges and other actions to take this coming week We have four active recommendations remaining for next week. CORN 2012 crop: Active: Have an offer in to buy the December Corn $7.20 /$6.20 bear put spread on 50% of the B bushels if December Corn rallies to the next target at $ crop: Active: Have an offer in to hedge 10% of your 2013 corn A bushels if December 2013 corn rallies to our target at $6.90. SOYBEANS 2013 crop: Active: Have an offer in to hedge 10% of your 2013 soybean A bushels if November 2013 soybeans rally to our target at $ WHEAT 2012 crop: Active: On a 25 cent rally from Friday s close in the wheat futures, increase 2012 wheat sales by 20%. 5

6 Where You Should Be Summary of your marketing actions to date CORN 2012 Corn: Hedges are at 100% of the 2012 A bushels Corn: Hedges are at 10% of the 2013 A bushels SOYBEANS 2012 Soybeans: Hedges are at 90% of the 2012 A bushels Soybeans: Hedges are at 10% of the 2013 A bushels WHEAT 2012 Wheat: You are 60% sold on your 2012 wheat crop. FUEL: The fall 2012 fuel was locked in with the recommendation in late June. FERTILIZER: Your 2013 fertilizer was locked in with the recommendation in late June. FEED Feed corn: You locked in 50% of your third and fourth quarter corn feed. Soybean meal: You locked in 50% of your third and fourth quarter soybean meal. 6

7 Ask Al... We had a lot of questions called in about merchandising this week. Question #1, I have a 23 under basis on corn, and the December bid is 18 under. Should I use my storage, or just haul the corn in? My answer: Use your storage. I look for a 20 to 30 cent basis improvement by December of 2012 to January of Elevators have plenty of storage and will be competing to get the smaller crop bought from farmers once it is put into storage this fall. Question #2, I have a bunch of extra soybeans. Should I put them in my own bin, or haul them to town? The storage charge is 4 cents per month. My answer: Haul them in. You will have a shrink of about 3% by putting your soybeans in the bin and then taking them out later. When you are putting $15 soybeans in the bin, the 3% shrink will cost you 45 cents per bushel. You can pay some storage in town for 10 months and still break even, not to mention the cost of auguring the crop in and out of the bin and the additional trucking you will need to do. Do you have a marketing question? Send your questions to Al at info@kluispublishing.com. Announcements and Other Information Kluis Calendar Basis & Market Update The Wednesday close for December 2012 CBOT Corn was at $7.56 this week. Cash basis bids improved by at least 5 cents as farmers stopped selling on the hard down move in the futures market. November soybean futures closed at $16.70 this Wednesday. Cash basis bids were steady in some areas and as much as 5 to 15 cents better in some areas where the soybean harvest is nearly complete. 7

8 Market Snapshot Corn: Long Term Corn futures closed sharply lower this week. The slide in corn prices continued this week with futures dropping down to test support at the July 9 low at $7.32. Prices are over sold and will have resistance on any rebound rally to $7.90. I look for a seasonal low in the corn market to develop in the next two weeks. Watch for a Friday-to-Friday higher close to signal that low. For the week: The weekly corn chart had a 41 cent trading range and closed down 34 cents from last Friday. 8

9 Corn: 2012 Crop December 2012 Corn futures closed lower this week. Corn futures dropped down through support at $7.60 this week, putting in a triple bottom at $7.39. That is critical short term support with additional support at $7.32. The corn market appears to have put in a high right after the USDA crop report on August 10. With the $1.00 per bushel drop since then, we should put in a harvest low in the next two weeks. Several cyclical patterns I work with project a low between September 25 and October 5. For the week: December corn had a 41 cent trading range and closed down 34 cents from last Friday. 9

10 Corn: 2013 Crop December 2013 Corn futures closed lower this week. Futures dropped down to test support at the triple bottom at $6.32. A close below $6.32 could send price down to long term support at $6.02. Long term I look for a test of $6.70 to $6.90 where we will consider placing some 2013 crop hedges. For the week: December 2013 Corn had a 29 cent trading range and closed down 22 cents from last Friday. 10

11 Soybeans: Long term Soybean futures fell sharply lower this week. Futures fell through support at the two week low at $16.88 and are now down testing long term support on the weekly chart at $ Prices are oversold and will have resistance on any rebound rally back to $16.80 to $ The old rule that prices drop twice as fast as they go up appears to be true again this year, with prices down over 10% in the last two weeks. Seasonal odds project a low in early October. For the week: Nearby soybean futures had a $1.29 trading range and closed down $1.17 cents per bushel. 11

12 Soybeans: 2012 Crop November 2012 soybean futures opened slightly lower on Sunday night and fell the 70 cent limit down on Monday. Prices continuing to plummet lower into the close of trade on Friday. With futures falling below support at $16.88 the next major support is the July low at $ The chart shows short term resistance at the Thursday high at $ A close below $16.02 could take prices back to long term support at $ I look for a cyclical low between September 25 and October 5. For the week: November soybean futures had a $1.29 trading range this week and closed down $1.17 per bushel. 12

13 Soybeans: 2013 Crop November 2013 soybean futures closed lower this week. Prices dropped below support at the two week low at $13.41 and then dropped down to the Tuesday low at $ Seasonal odds and several of the market cycles that I watch project a low in the soybean market within the next two weeks. Look for long term support at $13.00 with resistance at $ My long term objective is to begin placing some additional 2013 hedges if futures rally up to $14.40 or higher. For the week: November soybean futures had a 68 cent per bushel trading range this week and closed down 44 cents per bushel. 13

14 Wheat December MGE Wheat futures closed lower this week. Wheat futures fell sharply lower into Tuesday and then rallied back into the close of trade on Friday. The $9.25 level is good support with resistance at $9.83 and then at $ A close over $10.35 will set up a challenge of the $11.20 high from June of Look for major support at the July low at $9.25. Wheat prices held very well considering the hard down move in the corn and soybean markets. December CBOT wheat is now trading at $1.49 over the December CBOT corn market. At the large premium, wheat is out of the global feed grain market. For the week: December wheat futures had a 67 cent trading range with prices closing down 20 cents from last week. 14

15 Oats December Oats closed lower this week. The oats market opened and traded higher on Monday before selling off sharply lower into the close of trade on Friday. Futures are at a major level of support. The first Friday to Friday higher close will confirm an important low. Strategy: New crop 2012 sales should be at 40%. If December oats rally to $4.50 or higher, increase sales by 20% to get to 60% sold. 15

16 Canola November Canola: The canola market closed lower this week. Prices closed limit down on Monday and continued to slide lower into the close of trade on Friday. With prices falling below support at $627, the next major support is at $605 to $600. Strategy: New crop 2012 canola sales should be at 60%. The analysis and information contained within are based on information we believe to be reliable. There is no liability for its use. There is a risk of loss trading futures and options. The Al Kluis Report is published 48 out of 52 weeks a year. Copyright 2012 Al Kluis. 16