GRAIN MARKETS
Global
updates
Option-based price floor may be best bet
By Paul Dubravec
Advance Trading
M
arkets have been fairly tame
so far for 2016 as an abundance of Global Feed grain
stocks and general outlook
for a large South American
crop loom over and temper any attempt for
a general rally in markets. In the February
9 USDA report, USDA lowered export demand for corn by 50 mbu while increasing
ethanol usage by 25 mbu and imports by 10
mbu, in the end penciling carryout higher
than trade expectations at 1.837 bbu. For
sorghum, USDA left all pieces unchanged,
keeping carryout at 65 mbu — more than
three and a half times larger than the previous year.
Global production of coarse grains was
raised from last month by 2.33 MMT
(roughly 92 mbu corn equivalent) as Argentine and Brazil corn crops were raised a
combined 3.9 MMT, which more than offset
the decline in South Africa and Ukraine
production. Note South Africa has suffered
a historic draught, however they account
for only 1 percent of total global corn
production. China is expected to increase
corn feeding by 2 MMT (80 mbu) though
we expect to see that come out of their
over abundant government-owned stocks.
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Global foreign feeding in corn/coarse grains
is expected to increase, though a potential
for increase wheat feedings could alter
those expectations.
Bottom line from a pure fundamental
outlook, it’s difficult to make a case based
on what we know today for a bullish run in
grains at least near term. Emphasis on what
we know today since plenty can change
in terms of planting, growing conditions,
weather and geopolitical impacts going
forward into 2016.
Closer to home and specifically in south
Texas, questions continue to swirl as to
demand for sorghum demand this summer
and fall. There is plenty of reason to believe
demand seen in recent past years will not
be here this coming crop year. Why? China’s
government is in the process of changing
its form of production agriculture subsidies, moving from a guaranteed internal
government price to what its claims will be
more of a subsidy system allowing for the
internal commodity price determination to
be market driven. No final ideas in terms of
potential programs have been announced
by the Chinese government at this point,
but it has implemented changes that have
had a direct impact on milo demand as they
continue efforts to reduce the huge stocks of
government-owned corn supplies.
In addition to being more stringent on
the issuance of milo import permits, or
CIQ permits, the Chinese government has
reduced its internal government corn price
to make it more competitive and thus less
advantageous to import sorghum. Talk of
additional reductions in the internal government price are ongoing and, based on
some of the recent values being discussed
in the trade today, U.S. values would have
to drop significantly to pencil in a milo
import margin worth considering for the
Chinese importer. These reductions could
equate to new crop basis values this year
being as much as a dollar a bushel (1.80/
CWT) below last year’s higher basis values.
Stay tuned.
Weather – like prices is unpredictable and
volatile.
Some years, weather is one of the most
significant pieces to price input and is
impossible to predict, just as markets are.
As planters roll in the southern U.S. and
final field work prep begins in the major
corn belt states, markets will be watching
closely to see if the change that some in the
weather industry from El Nino the La Nina
will occur sooner than later. Today there
is a 50/50 spilt of those who do and those
who do not believe in El Nino turning to La
Nina soon enough to impact the tail end of