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Grain Hedge: Markets Turn Focus to Demand after USDA Reports

Grain Hedge: Markets Turn Focus to Demand after USDA Reports

16 November 2013

ANALYSIS - Last Friday, the USDA released its production and supply/demand estimates for the month of November, writes analysts at Grain Hedge.

The grain markets rallied for a couple of sessions following, but now the focus has shifted from production and supply to demand side fundamentals. Over the last couple of sessions, the grains appear to be searching for a direction in which to move.

Corn rallied to multi-week highs following the USDA reports last week, but has since fallen back near recent lows. This market needs strong demand side fundamentals to help find a bottom.

Ethanol production could play a major role in price action moving forward. The EIA reported ethanol production increased 25,000 barrels per day this week to 927,000 barrels per day, which is the highest weekly production since February 2012. A lot of questions still surround 2014 ethanol production as the EPA has not yet finalized their decision on the 2014 Renewable Fuels Standard. This decision will be an important piece to the demand size puzzle in coming months.

Soybeans hit multi-month highs Thursday, but sold off heading into the weekend after searching for price direction the last couple of sessions. NOPA crush numbers were released for the month of October, and these strong figures did little to firm price action.

Analysts were expecting NOPA to report 154.3 million bushels of soybeans were crushed during the month of October, with NOPA reporting 157.063. This NOPA crush report was more viewed as confirmation of stronger crush detailed in the November 8th WASDE report rather than fresh bullish news for the soybean market to digest.

Wheat has continued to slide lower over the last couple of weeks, but has found support in the $6.40 area. Ending stocks were raised slightly in last week's USDA report when stocks were expected to fall.

Demand continues to slow and US supplies continue to be passed over in international tenders. Export sales were expected to be between 350,000 MT and 550,000 MT, but were reported at 287,800 MT. A stronger dollar index has not helped out competitiveness recently.

US supply side information is mostly factored into the markets as corn and soybean harvest are wrapping up soon. The grain markets will now begin to focus on demand side fundamentals and South American production in the coming months.

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