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Grain Hedge: Grain Rallies Meeting Resistance

01 December 2012

US - The grain markets have rallied since hitting lows about 10 days ago.

The rally in the grains has begun to meet resistance near the high end of the recent trade ranges. For corn, the story continues to be demand which remains relatively weak. We saw ethanol production fall about 1% from last week and is 12.5% off of last year’s pace.

Stocks fell about 3% this week, but are still 5.13% greater than last year. At the current pace of production, our model for corn used by ethanol shows that an estimated 4.375 billion bushels will be used taking into account the profit margins for ethanol facilities.

That is 125 million bushels below the current USDA estimate of 4.5 billion bushels. Secondly, export sales of corn missed the mark this week coming in at 236,100 MT for ‘12/’13 and 27,400 MT for ‘13/’14. Taking into account seasonality of sales, we are running about 14 million bushels behind pace to meet current USDA projections. Some revisions to the demand scenario in corn are expected in the December report.

For soybeans, South American production and export demand has driven the market. Although export sales missed expectations and were reported as 319,100 MT, we still are running about 170 million bushels ahead of pace to meet current USDA estimates taking into account seasonality of sales. This positive pace has fallen throughout much of this marketing year, however. Soybean meal and soybean oil were a couple of bright spots in the export sales market with meal exceeding expectations and oil meeting expectations.

For wheat, we’ve been watching the Kansas City/Chicago spread recently. With the winter wheat crop in relatively poor condition and a lack of exportable surpluses of high quality milling wheat on the world market, we’ve seen this spread take off recently with a premium building for KC wheat. This spread will be one to watch in the coming weeks. Export sales for wheat missed the expectations as well and were reported as 279,300 MT.

Technically speaking, on the daily charts for corn, soybeans and wheat the markets have reached the top end of the recent ranges. Some key resistance levels have been tested and have held thus far leading to the choppy, mixed trade we have seen over the last few sessions. Keep in mind first notice for many December contracts is Friday, which could lead to more volatility as positions are rolled or liquidated.

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