Free Commentary

By: Dan Hueber –

Good Monday morning and we have been greeted with higher grain and soy prices for the second week in a row.  While hardly what you could call “pattern” by any means it is refreshing to see and would at least appear to be indicative of the relative value of the ag commodities in relationship to many other classes of investments. Of course having the “final” production estimate lurking just days ahead is undoubtedly creating additional short-covering in the most oversold markets as well.

Reuters did release estimates for the report over the weekend which break down as follows; Total corn production is estimated to tally 15.196 billion bushels using a yield of 175.1 and ending stocks of 2.385 billion.   As you can see, these are little changed from the last USDA estimate of 15.226, 175.3 and 2.403.  For beans, they computed an average estimate for production of 4.374 billion, yield of 52.7 and ending stocks of 468 million.  Currently Uncle Sam has these figures at 4.361, 52.5 and 480.  The average estimate for total wheat ending stock via Reuters stands at 1.148 billion, which would be up a meager 5 million from the last estimate.  It would appear that the trade is looking for little in the way of adjustments for the world production and usage estimates as well with the average guess for ending world corn inventories at 221.94 MMT vs. 222.25 last month, beans at 82.58 vs. 82.85 and wheat at 252.01 vs. 252.14.

China continues to make steps to try and position itself as a major center for international commodity trade and last month regulators in that country approved the introduction of option on futures.  With the door now open the Dalian Exchange announced plans to begin trading option on soya meal later this year and the Zhengzhou exchange will begin options on white sugar.  While you may initially assume this will have little impact on markets here, do not lose sight of phenomenal growth that is already begin witnessed at those exchanges, (Dalian up 50% last year) not to mention that the Far Eastern part of the globe has dictated world beans demand for several years and show now sign of letting up.

Macros are all just a bit stagnant this morning as well.  Equities are a touch weaker as is the US dollar but fairly insignificant losses for each.  Gold is higher, which is understandable with the weakness in those other markets.  The poster child for all things commodity, namely crude oil is struggling this morning and while not exactly a collapse or major reversal, it does appear to be losing upward momentum now that the OPEC news has been absorbed into prices and nothing else fresh coming our way.  While I am not sure we can label the action as the “canary in the coal mine” but considering that it was been the major influence pushing commodity indexes higher over the past year, a correction there could foretell a number of months of basically directionless action ahead.