Sent: Tuesday, August 13, 2013 5:01 PM
Subject: Advance Insight - 8/13/13
Corn
December futures fell to a three year low as the dust settled
from Monday’s report and traders realized the large carryout number and
likelihood of the crop getting bigger going forward. A large part of a bigger
crop outlook comes from the methodology behind the USDA’s yield calculation. They use the 5-yr. avg. on ear
weight combined with surveyed ear population/acre. The argument can be made
that last year’s lower avg. ear weight, as an outlier, should be tossed out-
doing so, and using the same calculation for 2007-2011, brings the national
yield estimate up to 160.4 bpa. This is the formula used on the Aug. report due
to lack of maturity/data for actual ear weight for the upcoming crop.
Funds were sold an estimated 12,000 contracts. U/Z traded as low as 6 ¾ before
settling at 7 ¾ inverse. Basis levels remain firm, Decatur at +155 CU, Hereford
@ +205 CU. Coverage remains thin for Sept and those managing a DP short should
still have majority of longs in the September. Z/H traded 13 ½, this is an
excellent level for locking in carry on anticipated ownership. If a customer
wanted to push 80% coverage at 13.5 (little extreme to make a point), I am not sure I could come up
with a good argument against it. With a projected SON demand, historically low
farmer marketing, and uncertainty of harvest timing, I am willing to risk 2-3
cents of full carry. Worst case scenario is the spread widens- this
should reflect at least the equivalent value in basis weakness for fall
ownership opportunities and wider carry in the H/K and K/N.
Nate Durako
Beans
Beans had a two sided trade today closing down double digits for
August while Sept through March were up 1-2 cents. Tomorrow is the last trading
day for August and OI started the day at 405 contracts for beans. Weaker cif
values did impact August futures and the likelihood of deliveries along river
terminals with beans does make sense. Cif at approx. +170X is equal to +38Q and freight for 3rd
week of August when barges would be place is 60 cents along Pekin rate base or
over 30 cents light of DVE. Central IL processor bids are more in the 1.80 to
1.90X area and costs to stop and truck out of these areas would be more than
that. No beans have been registered up to today, but that may change this
evening. Argentine crush workers in Rosario will start a 24 hour strike
at midnight in hopes for improved working conditions and more health care
centers. SAFRAS estimates that S.A. bean production could reach 160mmt in
‘13/’14. This would be an increase of 10% if achieved. Deferred spreads
tightened heavily today with X/H narrowing over 2 cents and X/K came in almost 6
cents. New crop export
basis offers remain solid but with so little elevator ownership and strong
sales on the books, it feels like there is more risk than reward to short
values this early.
Dewey Hull
Wheat
Wheat tried to stay even on the day however the pull from corn
was more than the wheat bulls could take. Funds sold around 2k contracts on the
day pushing wheat lower by the end of the day. News was limited today —
Bangladesh bought 200K Ukrainian wheat to help replenish states reserves. The
French wheat crop continues to grow in size however harvest is slow and late
thus helping US demand. Australia is picking up some moisture helping that crop
but expect light exports thru the 2013 yr. Gulf values for 12.0 pro stay firm
with lack of ownership and decent export demand. Moisture continues to bless
HRW country, with a decent fall crop on the horizon elevators will be
challenged to move more wheat to make space with the lack of ownership. If you
can logistically move the HRW wheat then the Sept is ok to keep what little
hedges you do have. If you plan on holding wheat then talk with your broker
about getting to the Dec. Biggest question remains how long will this export
demand hang around? Wheat planting is right around the corner, and if this
weather pattern holds we can expect large amounts of wheat acres in the
rotation. Plenty of field work to be done between now and then however the
moisture is by far more of blessing than a hindrance. KC protein scales were
mostly unchanged 12.0 thru 12.6 were up 1c as the “protein inverse”
remains strong giving the shuttle shippers and warehouses incentives to blend
low pro and high pro wheat.
Troy Presley
Alex Grohsmeyer
Advance-Trading, Inc.
309.664.2392
agrohsmeyer@advance-trading.com
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