Saturday, August 4, Notes From Al

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1 Get This Newsletter Every Saturday from Al Kluis Commodities..."Your Markets, Right Now"...AlKluis.com Saturday, August 4, 2012 Notes From Al Grain prices closed mixed this week and there was a reduced volume of trade. The intra-day volatility was extreme at times, but by the close on Friday, the final changes for the week were not that much. Here are the numbers... A volatile week... Contract September 2012 Corn December 2012 Corn August 2012 Soybeans November 2012 Soybeans September CBT Wheat September KCBT Wheat September MGE Wheat Trading range Final change for the week 43 Up Up 14 $1.06 Down Up Down 7 63 Down Down 27 Meanwhile, I see two caution signs for the bulls: The crashing bull spread in soybeans, and the wider cash basis bids. Investors and grain traders are acknowledging that the drought has reduced the corn and soybean crop. However, at $8.00 corn and $16.00 soybeans a lot of this bullish news is built into the current price level. What is not known and is difficult to track is how much demand destruction has occurred. The fact that the corn and soybean markets could not go to new highs with the hot dry weather this week, plus the trade projections for a smaller crop, indicate to me that we have factored in the smaller crop. It will take new bullish news or a bullish USDA report to keep price moving higher. Hog prices continue to plummet. October hogs took out support at $79.00 and fell to new lifeof-contract lows on Friday. Sow liquidation is in full swing with sow prices down to just 20 cents per pound. Some producers report that they have to wait for weeks to deliver sows at a plant 1

2 that will take them. Long term the current hog liquidation along with the slow down in ethanol production create two very long term negative factors for the corn market. Plan to participate in our Coffee and Markets webinar Friday August 10, 2012 at 7:15 AM CT. This Webinar will be held during the release of the USDA August Crop Production and supply demand reports. I will be watching not only to see how much they cut the crop size, but also how much they cut from usage to show that we are not going to run out. In the last three years Katie Thompson and I have worked with some Hollywood partners to create a reality TV show about farming. I m proud to announce he first episode is done! It is a one-hour special called Against The Grain: The Year Mother Nature Struck Back. I have learned a lot and met some great people in the long challenging process. Now our first show is going to start being broadcast on stations across the US... today! To find out where and when you can watch this program go to We are adding more details to the list of local stations as we receive them. So far, over 150 stations have signed up for broadcasts between today and mid-october, and we have broadcast dates and times from about 37 of them. The next challenge: Producing the 26-episode series that will follow four farm families through the entire 2013 growing season. Stay tuned! Al s Market Thermometers The grain markets were choppy this week with corn closing higher, soybeans and wheat lower. Here's the updated set of the most important market factors affecting price now... Corn Bullish I am anticipating a 1 to 2% drop in the good/excellent ratings for corn on Monday. I look for the August 10 USDA Crop production report to drop harvested corn acres by 2 to 3 million acres. Bearish The large increase in open interest in the last seven weeks make the market vulnerable to an extreme sell-off if and when the funds hit the sell button. Slow corn exports and increasing losses in the hog industry. Odds are good the USDA will reduce the projected yield in the August 10 report to less than 130 bushels per acre. Concern about ear size in many areas of the Corn Belt that have been dry the last three weeks. A reduction in ethanol production again this week. The possibility of corn imports from Brazil into the SE poultry markets Disappointing early yield results. Wheat is now trading at a $1.00 premium to the corn market, 2

3 which will take wheat out of the feed rations. Soybeans Bullish Bearish Indications of a 23 MMT drop in Global economic uncertainty. soybean production in South America this year. The strong rally in the US dollar this week. Indications that harvested acres of soybeans may drop by 1 to 2 million acres in the August USDA crop production report. The USDA reduction of ending stocks for and in the recent USDA supply/demand reports. The likely drop in US crop ratings for soybeans by 1 to 2% next week. Based on the current crop conditions, the USDA will likely lower its yield forecast in the August supply/demand reports. The massive long fund position in the soybean market. The potential for record soybean supplies from South America in Bullish Dry conditions in the southwestern US. A large potential reduction in the wheat crop in Europe. The USDA projection for lower global ending stocks of wheat. Dry weather and reduced wheat crops in the Ukraine and Russia. Wheat Bearish The USDA wheat planting projection that showed US farmers increasing wheat acreage by 3.6 million acres in Ideal spring wheat crop conditions in the US and Canada, setting up the potential for a large spring wheat crop in North America. Extreme heat is taking a toll on the wheat crops in Nebraska and South Dakota. 3

4 Chart of the Week: Lean Hogs About this chart: The October 2012 Lean Hog chart shows the hard drop in hog prices the last several weeks. The next major support for hog prices is at the $65.15 low from October of Seasonal odds and continued sow liquidation both project lower prices through the month of October. What this means to you: The current liquidation in the hog industry is pushing hog prices and profits lower. This is a huge concern for all corn farmers. This final result will lead to a lot less corn being fed next year and much higher hog prices for the farms that stay in the hog business. What To Watch News and events that could move the markets. Monday: Watch the USDA crop condition report. My estimate is for corn good/excellent ratings to drop by another 1 to 2% on Monday. This would suggest a national yield of less than 128 bushels per acre. For soybeans I look for the ratings to also drop by 1 to 2%, which would project a yield of less than 37 bushels per acre. Watch the extended weather forecasts. The pattern is changing. The forecasts for next week now call for cooler temperatures and widespread rain across the Corn Belt. Click here ( to see the European model rain forecast for the next 10 days. If this forecast is right, the rain next week could still really help the soybean crop. 4

5 Watch the USDA August Crop Production and supply/demand reports. The current trade estimate is for a national corn yield of 120 to 127 bushels per acre. For soybeans the yield has been lowered to 36 to 38 bushels per acre. The USDA will be forced to cut 2 billion bushels off of corn usage, and soybean usage will need to drop by 250 to 280 million bushels. What To Do Now Specific recommendations for sales, hedges and other actions to take this coming week We have six active recommendations for next week... CORN 2011 crop: This crop is 100% sold 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 $6.50. SOYBEANS 2011 crop: This crop is 100% sold crop: Active Have an offer in to hedge another 10% of your 2012 soybean A bushels if November 2012 soybean futures rally to $17.50 or higher crop: Active If you are not comfortable putting on more soybean hedges, consider buying the November Soybean $16.00 /$14.00 bear put spread if November soybean rallies to the next target at $ crop: Active Have an offer in to hedge 10% of your 2013 soybean A bushels if November 2013 soybean rallies to our target at $ WHEAT 2012 crop: Active: On a 40 cent rally from Friday s close in the wheat futures, increase 2012 wheat sales by 20%. This brings sales to 80% in the cash market. Where You Should Be Summary of your marketing actions to date 5

6 CORN 2011 Corn: This crop is 100% sold Corn: Hedges are at 100% of the 2012 A bushels Corn: Hedges are at 10% of the 2013 A bushels SOYBEANS 2011 Soybeans: This crop is 100% sold Soybeans: Hedges are at 80% 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. We had a lot of questions called in this week... Ask Al... Question #1, What will happen if we have another drought in 2013? My answer: It would be bad news not only for grain farmers but for the livestock and ethanol industry. The change from the La Nina pattern to El Nino next year greatly reduces the chance of a serious drought in the US or South America in Question #2, How much can South America increase production in 2013? My answer: The early indication is for 5% more corn in Brazil and 8% more soybeans. In Argentina, where farmers are still struggling after last year s drought, corn acres may be 6

7 down by 5% with soybean acres up by 10%. Total South American corn production with normal weather could increase by 5 to 8% and soybean production by 20 to 30%. 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 September 2012 CBOT Corn was at $8.00 this week. Cash basis bids were 5 to 8 cents wider late this week. The bids have all rolled out to the November contract. November soybean futures closed at $16.29 this Wednesday. Cash basis bids were 10 to 30 cents lower this week at some locations as many locations dropped the cash bid down to the new crop bid. 7

8 Market Snapshot Corn: Long Term Corn futures closed higher this week. The two week low at $7.74 is critical short term support with resistance at $8.28. A weekly close below the two week low at $7.74 will confirm a major high in the corn market. The price consolidation the last two weeks suggests prices are in the process of topping out. It will take a bullish USDA report to close September Corn above $8.28. If September Corn can close over $8.28 I would look for a rally up to $8.50 to $8.80. For the week: The weekly corn chart had a 43 cent trading range and closed up 11 cents from last Friday. 8

9 Corn: 2012 Crop December 2012 Corn futures rallied up to $8.20 on Tuesday and then chopped in a 28 cent trading range into the close of trade on Friday. This chart has initial support at this weeks low at $7.81 with major support at the two week low at $7.45. A weekly close below $7.45 will confirm an important top in the corn market. A close next week above $8.20 would open the door for a test of $8.30 to $8.50 where we will consider additional hedges and the purchase of put options. For the week: December corn had a 39 cent trading range and closed up 14 cents per bushel. 9

10 Corn: 2013 Crop December 2013 Corn futures went higher this week. Futures made a new weekly high close. The two-week low at $6.02 is now critical short term support with resistance at the contract high at $6.46. Look for resistance on a rally up to $6.40 to $6.60, where we will consider additional new crop hedges. For the week: December 2013 Corn had an 18 cent trading range and closed up 12 cents per bushel. 10

11 Soybeans: Long term Soybean futures fell lower this week. Futures put in a second inside week on the chart with this week s trading range within the last two weeks trading range. The market has critical support at the two week low at $ Resistance is at the contract high at $ A close below the two week low at $16.10 would confirm a major high. A close above $17.77 will open the door for a test of $ For the week: Nearby soybean futures had a $1.06 trading range and closed down 28 cents per bushel. 11

12 Soybeans: 2012 Crop November 2012 soybean futures had an inside week, closing higher this week. Soybean futures gapped higher on Monday, fell to a low on Wednesday and then rallied back into the close of trade on Friday. The two week low at $15.36 is critical short term support with resistance at $16.63 and then at $ A close above $16.91 will set up a test of $17.30 to $17.50 where we will consider additional hedges and the purchase of put options. For the week: November soybean futures had a 68 cent trading range this week and closed up 27 cents per bushel. 12

13 Soybeans: 2013 Crop November 2013 soybean futures closed higher this week forming an inside week on the chart. Futures gapped higher on Sunday night and then chopped sideways in a 40 cent trading channel. The weekly low at $12.61 is short term support with major support at the two week low at $ Plan to begin placing some additional 2013 hedges if futures rally back to $14.40 or higher. For the week: November soybean futures had a 29 cent per bushel trading range this week and closed up 26 cents per bushel. 13

14 Wheat September MGE Wheat futures closed lower this week. Wheat futures dropped lower into Thursday finding support at $9.22. The chart has resistance at $9.60 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 $9.03. For the week: September wheat futures had a 64 cent trading range with prices closing down 7 cents from last week. 14

15 Oats December Oats closed lower this week. The oats market gapped higher on Monday and then fell lower into the close of trade on Friday. This chart has resistance at the recent high at $3.92. The next chart objective is at $4.10 per bushel where we will consider additional sales. Strategy: Cash sales should be at 100%. New crop 2012 sales should be at 20%. If December oats rally to $4.10 or higher increase sales by 20% to get to 40% sold. 15

16 Canola November Canola: The canola market closed lower this week. Prices traded sharply higher until Tuesday and then dropped lower into the close of trade on Friday. The market has resistance at $633 and then at $645 per ton. A weekly close below $600 will confirm a major high in the Canola market. Strategy: Cash sales should now be at 100%. New crop 2012 canola sales should now be at 60%. If you are not up to 60% sold use any rally back to $640 to get those sales in place. 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