Numbers added to an emotional market

This is the big day. Once again I am privileged to write my opinions, knowing that, even as this is being published, new fundamental information may be going into the market that will make me right or wrong.

Crop summary

This is the morning that USDA will release the Annual Crop Production Summary, Winter Wheat Seedings and Quarterly Grain Stocks, both global and domestic.

Within this blizzard of paper will be new numbers for such things as domestic feed usage, industrial (read ethanol) use, carryout and our first hard estimate of wheat acres. Traders will hang their hats on certain anticipated changes, but the initial guesses of price direction from this muddy mess will certainly be surprised.

The best that I can say at this point, two and a half hours before release, is one fact of which I am sure: prices will go up, or down, or stay the same or all three in the same day. I am forced to admit the obvious — that statement is totally true and totally useless. At best I can say that we have traded this market lower, both for the last month and the last day, so that we are poised for a rebound.

I have been focusing on corn prices, because that is what I trade the most and that has had the most negativity lately. We have seen new life of contract lows, followed by new lows again.

Monday, after some recovery last week, we lost five and a quarter cents on the March futures, to close at 3.513⁄4. I was depressed at the low of 3.57 Dec. 29, but then it went lower. We saw 3.501⁄2 Jan. 4, 3.501⁄4 Jan. 6, and 3.481⁄2 Jan. 7. 2016 is not impressing me so far.

Soybeans

March soybeans, meanwhile, seemed to be trying to make a normal bounce off the cycle low of 8.52 Jan. 6. In the process, we did not make a new low and we traded as high as 8.71 Jan. 8.

Then, we lost 4 cents Jan. 11. Still not as bad as the corn. The big loser Jan. 11 was wheat, where the March futures were off 91⁄2 cents for the day, to close at 4.68.

Darin Newsom of DTN put out a long letter discussing the fundamental numbers we could see, with the implications Jan. 11. When I got done reading the list I was left with the idea that I just had no opinion until the market traded the reports. In a time when it seems there is nothing to move prices around, there are, indeed.

South America

Look at South America and the bean situation. Recently, I repeated the opinion that Brazilian weather was hurting the crop, but the increase in acres would still give them a record. Yet, some analysts look for a 100-million-bushel cut in the crop. In addition, there is the question if the recent cut in the Argentine export tax on soybeans has moved more out of the country than previously thought. That would be slightly bullish.

If you follow futures, you know that the January to March soybean spread has inverted, to an amazing 20 cents. This means the January is 20 cents higher than the March. Cash traders in elevator country are using the March, as the January is in delivery. The inverse is an indication that, at his price level, the buyers are struggling to get the beans they need. While the spreads look bullish, other factors are not.

We know from the Commitments of Traders Report that the specs have been increasing their short positions at the same time that commercial traders (read processors) have been getting longer. All these traders will be looking at the reports today for a reason to change positions.

Meanwhile, some of the pre-report estimates imply that demand should increase, at a time when that does not seem likely. We increase demand with increased ethanol production and increased livestock numbers. In fact, gasoline demand has gone away and cattle numbers have decreased.

As for the wheat, the critical number is the world ending stocks. We have a huge amount of wheat on hand, unless, of course, the report shows that has changed.

Hope

I have long held our modest hope that we would see some rebound in prices after the holidays. I am not bullish, but just used to the historical pattern that prices get better in a cheap year when we get to January.

Today, we will find out some of the answers as to whether my hope for modest gains is to be realized, or if we don’t really know what cheap grain is.