SunPrairie Grain Morning Comment

MINOT - Jul 11/12 - SNS -- Following is the morning comment from SunPrairie Grain, a division of CHS.

[cid:image001.jpg@01CD002F.571BB930]

Morning Outlook as of 8:25 AM CDT:

Wheat: 13-15 higher, USDA says more exports and less global carryout in 2012-13 (Mpls Sept last trade 9.32 ¼, KC Sept 8.35 ¾)

Soybeans: 27-30 higher, yield cut by far more than expected, production down and exports down somewhat too (November last trade 15.68 ½)

Corn: 18-20 higher, yield cut by more than expected to 146 bpa - this slashes production, however export estimates are down too (Sept last trade 7.38 )

Sunflowers: 5-10 higher, following soybeans, little else to drive price direction

Canola: 5-10 higher, futures stronger with rally in US markets, crude

*Those with AOG contracts (malt barley, flax, NuSun sunflowers, Victory Canola, HiOleic Sunflowers) - please submit your FSA 578s ASAP. Thank you!*

Yesterday:

Crude prices were sharply lower yesterday and the grain markets saw some profit taking in front of this morning's USDA report. Corn prices lost 15 cents as prices struggled with slowing demand. Soybeans did a little better, losing only seven cents to profit taking with weather and strong demand providing some support to prices. Wheat tried to be strong due to production concerns in the Black Sea region but falling row crops were enough to pull wheat prices lower. Spring wheat finished the day eight cents lower and hard red winter wheat was down seven cents for the day. Flax continued to show its strength and was up five cents , canola gained a nickel but sunflowers were down 15 cents on the day as soybeans pulled prices lower. Markets cannot trade higher everyday and yesterday was a mild correction in front of today's USDA S&D report.

Today:

Well the report was mostly favorable for grain markets, especially so for corn and soybeans. Yield was cut by more than expected for both markets and we're seeing higher prices this morning as a result. However, gains are not what I would expect given the drastic yield cuts which tells me that the market has likely worked to price this information into futures. The report was pretty boring for wheat, really, and it looks like price are following what row crops are doing for now. The USDA report and unfavorable growing conditions are enough to push grain prices higher today after they started out fairly quietly (but higher) in the overnight session. For what it is worth - the US dollar is lower this morning and crude prices are higher after being sharply lower yesterday.

Let's get down to the numbers, shall we? The USDA slightly decreased all wheat production from the June 1 estimate to 2.224 billion bushels and exports increased just a bit from June as well. This worked to put ending stocks at 664 million bushels (June estimate was 694 millbu) which is below the 2011-12 estimated ending stocks of 743 millbu. Additionally, there were cuts to the Russian and Canadian wheat production estimates. The EU-27 wheat production estimate was increased but overall world carryout for 2012-13 declined to 182.44 million MTfrom the June estimate of 185.76 million MT World carry from 2011-12 increased just slightly. There will be slightly more spring wheat produced this year than last year, as well as more durum. Hard red winter wheat production was decreased slightly from the June estimate to 1.010 billion bushels from 1.024 estimated in June. Spring wheat basis continues to look very shaky as strong selling continues but demand remains fairly quiet. For those of you with spring wheat hedge to arrive contracts, you may want to consider locking in that basis before we get to harvest and selling pressure really picks up and values have the potential to crumble even further.

Soybeans saw a drastic reduction in yield from the USDA this morning - taking estimates lower than the market range of estimates of 41.3-43.9 bpa. The USDA pegged US soybean yield at 40.5 bpa, well below the average market estimate of 42.3 bpa and the June estimate of 43.9 bpa. This put US production at 3050 million bushels versus 3205 millbu estimated in June and 3056 estimated for 2011 production. Exports also declined a bit for 2012-13 but ending stocks also ultimate declined to 130 millbu from June's estimate of 140 millbu. The US carryout for 2011-12 also declined slightly. Global carryout for 2012-13 saw a decline to 55.66 million MTfrom June's estimate of 58.54 million MT The market will remain concerned about growing conditions as we move forward and whether or not we will see any further yield reductions.

Corn also saw a surprise in yield estimates from the USDA this morning. The market expected to see yield estimates of 154.1 bushels per acre for 2012-13 with the estimates range going from 147.1-160.2 bpa. The June estimate was 166 bpa. In one month the USDA decreased corn yield by 20 bushels per acre! The reduction puts corn yield at 146 bpa and drastically cuts production from 14.79 billion bushels estimated in June to 12.97 billion bushels (12.358 billbu 2011 production estimate). Slightly lessening the blow, though, exports for 2012-13 were slashed from 1900 milbu to 1600 millbu as nobody wants to pay for high priced corn. However, ending stocks for 2012-13 still increased drastically to 1183 millbu from 1881 millbu estimated in June. Ending stocks for 2011-12 were increased, though, as demand estimates were cut. It seems that $7+ corn futures are enough to scare away demand for the time being. As I said above, I'm surprised that prices are not reacting a little more aggressively to the drastic yield cut. Yes, a 20 cent gain is quite nice, but with the somewhat surprising news I would expect to see more. Does this mean that the market has already well priced in crop damage? What typically happens when bad news has been fully priced into futures? I read an article today about how some farmers in the corn belt are mowing over fields as the drought continues - for what it's worth.

Seems like we will pay attention to favorable report numbers today. It is tough to say what will happen from here. If we have priced in crop damage for now I'd expect to see some market corrections as we move forward. Also, prices are getting way too high and demand is being scared off left and right. However, if crop damage continues to get worse we could see these markets have some strong support underneath them.

As always you can reach me at Kayla.Burkhart

To discuss this report further or for specific trade ideas please contact me

directly

Kayla Hoffman

SunPrairie Grain

Kayla.Hoffman@chsinc.com

Toll free: 800.735.4956

Local: 701.852.1429

Fax: 701.839.5515

DISCLAIMER: Futures and options trading involve substantial risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more then their original investment. In no event should the content of this website be construed as an express or an implied promise, guarantee or implication by or from the author(s) that you will profit or that losses can or will be limited in any manner whatsoever. Past performance is not necessarily indicative of future results. Information provided on this website is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

Information on this page is derived from third parties and is deemed to be reliable. STAT Communications Ltd. accepts no responsibility for errors, omissions or inaccuracies in any of the material presented on this web site. Opinions expressed on this web site are those of the respective individuals and/or institutions and do not represent the opinions of STAT Communications Ltd. or its staff or its management.