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Profit Watch Commentary – January 3, 2014

We will finish the first week of 2014 with a double whammy – a plunge in prices and a plunge in temperatures. Records are expected to fall across the country as frigid temperatures move in from Canada. Northern Minnesota may see wind chills of -75 degrees on Sunday morning. Wind chills colder than 50 below can cause exposed flesh to freeze in only 5-10 minutes. This weekend is expected to be the longest sub-zero period in 18 years. Bundle up!
The snowstorm in Chicago and out East coupled with the holidays have affected trading volume this week. Hopefully next week everyone will be back to work.
Believe it or not, the big January Crop report is only one week away. Early next week, the trade will be releasing private trade guesses on production and carryout. Informa got ahead of the game, and released their best guess today. As per usual, their production numbers increased. Below is a recap.
Informa Current USDA est
Corn 14.160 bln 13.989 bln – 161.6 bpa 160.4 bpa
Soybeans 3.329 bln 3.258 bln – 44.0 bpa 43.0 bpa
The higher corn production estimate was due to a combination of an increase in yield and harvested acres. The bump in soybean production was the result of higher yields. Interesting to find that the highest trade estimate in the November crop report was 43.3 bpa. Informa’s yield estimate of 44 bpa matches the record US yield in 2009.
Despite Informa’s bearish projections, both corn and soybean prices ended the day on a positive note. Wheat actually led the rally and closed up nearly 9 cents after making new contract lows early in the day. Unfortunately, the weekly change in prices was not so positive. Corn and wheat lost 3-6 cents on the week, with soybeans taking the biggest hit. March soybeans fell 42.5 cents with November soybeans down nearly 25 cents.
March corn made a new contract low today, but finished the day up 3 cents. The higher close is a small victory. The corn market has been hit with everything from all sides lately. The US hog herd is shrinking due to disease. The weekly ethanol production was down from 926,000 barrels last week to 913,000 this week. (Bright spot: pace is still ahead of last year.) DDG prices are down $100/ton and cutting into ethanol margins. China may not unload DDGs if tested positive to MIR162. And to top it all off, export sales today were lousy. A marketing year low. Only 6.1 million bushels were sold this past week of old corn and .8 mln new. There was no Chinese business.
When it rains, it pours. But, perhaps the market is getting a little ahead of itself. A lot of negative news is in the market, and everyone pretty well expects a bigger USDA number next Friday. There is a chance that the DDG situation may be worked out with the Chinese as early as next week. The Funds are holding onto a RECORD short position. And, finally, the index funds are slated to buy over 90,000 contracts of corn starting next week.
If the Bears get their way, March corn will likely sink to $4.17, 4.10 and ultimately $4. If the Bulls can get a little relief, prices will target $4.25, 4.33, 4.40, and $4.495.
Soybean prices got ripped this week due to good rains in South America last weekend and the DDG situation. Harvest has started in a small area of Brazil and conditions are mostly favorable. 70% of Argentina also got good rains, leaving the majority of the country in pretty good shape. South America has a big crop coming and traders know it.
In the past, poor SA logistics have played a key role in the US securing unexpected export sales. We can’t imagine why that won’t happen again this year at some point.
To date we have more export sales on the books versus the current USDA projection. Today’s strong export sales of 34.7 mln bushels put the number over the top. We have 1.493 bln bushels of soybeans sold with a USDA projection of 1.475 bln. We don’t have all those bushels shipped, so there is the possibility of China cancelling sales in favor of cheaper beans from SA down the road.
The bean Bears were definitely cheering this week. Their next target for March soybeans is $12.625, 12.5625 and $12.3325. The Bulls will look to regroup with March targets of $12.75, 12.92, 13.00 and the December high of $13.3925.
Have a great weekend.

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