One of the oldest trading adages is, “it’s not the news, it’s how the market reacts to the news.”
The reason old trading adages stay around for years is because they are true.
Grain traders saw a good example of this last week as did equity traders.
The day after the Presidential election saw the fifth-largest, single-day stock market drop in history following an election.
Incidentally, the largest drop in history occurred following the first election of President Obama. The drop in the stock market clearly shows a lack of confidence in the Obama administration by the market.
At the time of this writing the market is down nearly 500 points from the day prior to the election. This should be a strong signal that the next several years should be a struggle for the market as the market will fear increasing unemployment figures and an ever-increasing national debt.
The November supply/demand report saw the USDA increase U.S. soybean yields by 1.5 bushels per acre. The USDA also increased world production forecasts and increased U.S. and world carryout levels.
While this news wasn’t totally unexpected by the trade, it sent the market sharply lower as a reaction. Soybeans lost 44 cents that day and were trading an additional 30 cents lower at the time of this writing in reaction to the report. While the news wasn’t a surprise, the reaction of the market should be a signal to grain producers and traders.
Losing over 70 cents of value is bad enough, but the message is clear, the trade is expecting additional yield increases in subsequent reports.
Producers who have listened to most market analysts are still holding the vast majority of their 2012 soybean crop.
Most analysts are convinced prices are still headed to all time highs, despite what the market is telling them.
There remains little fundamental, technical or financial reasons to hold onto soybeans, especially if they are stored in commercial storage. The market has clearly told you of its direction with its reaction to the report, isn’t’ the market a stronger voice than some analyst?
Corn closed the week $.00 3/4 lower. Last week, private exporters reported a sale of 152,400 metric tons of U.S. corn to Japan.
In the weekly export sales report, corn sales shows 6.2 million bushels slated for 2012/13.]
This is below the 16.4 mb that is needed to stay on pace with the USDA forecasts of 1.15 bb. The weekly crop progress/conditions report
showed U.S. corn harvest is 95 percent done nationally, up 4 percent from last week and ahead of the average of 71 percent.
The USDA bumped up its corn production forecast to 10.725 billion bushels, an increase from the 10.706 bb the agency predicted in October.
The increase brings USDA’s prediction almost back up to the 10.727 that the USDA predicted in September.
Last year farmers produced about 12.4 billion bushels of corn.
Average yields are now pegged at 122.3 bpa, up slightly from last month’s 122 bpa.
Corn stocks are estimated to be above average at 647 mb, up from last month’s 619 mb.
Corn looks to remain in a trading range as supply issues are well known by now and the demand puzzle moves to the front of pricing.
The lack of exportable corn demand looks to cap rallies, while the downside should be limited with lack of supply due to the summer drought keeping the basis tight in most regions.
Strategy and outlook: Producers are now 80 percent of 2012/13 crop and are also 40 percent sold of the 2013/14 crop.
Soybeans closed the week $.75 1/2 lower from last week. Last week private exporters did not report any private soybean sales.
In the weekly export sales report, soybean sales were 6.8 mb, this is below the 7.2 mb that is needed to stay on
pace with the current USDA forecast of 1.265 bb.
This week saw huge cancellations of previous sales to an unknown destination.
The weekly crop progress/conditions report showed the U.S. soybean harvest is 93 percent done nationally, up 6 percent from last week, and ahead of the average of 86 percent.
The USDA said in its monthly supply/demand report that U.S. farmers are now forecast to produce 2.97 billion bushels of soybeans, up from last month’s prediction of 2.86 billion bushels.
Iowa’s soybean yield is forecast at 39.3 bpa, up 1.5 bpa from the last month. Ending stocks for soybeans are up slightly from last month, 10 mb, and stocks are now forecast at 140 mb.
Prices will need to close above weekly resistance of $15.71 to confirm seasonal lows are in place. This was previous support that was broken and will serve as resistance on rally attempts.
Strategy and outlook: Producers are 80 percent sold of the 2012/13 production and are 40 percent sold of 2013/14.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien. He can be contacted at 605-660-1155.
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