Tuesday, December 14, 2010

Comments 12-14-10 Wheat markets hit hard

This a.m. markets are called mixed to weaker this a.m. behind an overnight session that saw a little red for the wheat and corn. 

In the overnight session corn was down 2-3 cents, beans where firmer by a couple of pennies, KC wheat was off 3-5 cents, MPLS wheat down 4, and CBOT wheat was down 5-7.  At 9:00 outside markets have the dollar up slightly with the March at 79.695, equity markets are firmer as the DOW is up about 42 points, crude is down about 50 cents a barrel, and the European wheat market is near unchanged.

Last night’s Chinese corn offering only found buyers for 131 TMT of the 1.8 MMT that was offer out.  Oil world pegged the Argentina bean crop at 54.4 MMT with the Brazil bean crop at 68.7; versus 52 and 67.5 that the USDA had them pegged at.

As mentioned yesterday the technical price action (sideways – consolidated with no strong sense of direction) we have seen in the wheat market along with the fact that the funds covered 30k plus short contracts last week makes me a little nervous in regards to where wheat goes over the next couple of weeks.  Any time we see price action like yesterday where the deferred contracts gain big time on the nearby; it isn’t a sign of upfront demand.

The birdseed market appears to be a little on the softer side the past couple of days.  Many of those that where looking last week don’t seem to have much interest right now.  I would say that generically speaking the birdseed market in general is one that if you have to sell you might not get the best price you would like; but it isn’t easy to buy either.  I.E. bid ask spreads are on the wide side right now.  Overall birdseed markets and prices should continue to follow the other markets.

As the markets went on this a.m. we quickly added to the weakness; especially in wheat.  Watching the price movement threw out the day we appear to hit many spots as I noticed quiet regularly moves that appeared to be a nickel or more at a time. 

MPLS which had been leading the wheat markets firmer the past couple of weeks; lead the downside pressure; part of this came from Japan doing business with Australia for high quality – food grade wheat.  Reminds me of Russia getting export sales back in July despite the drought; perhaps not the best thing to have happen; but maybe it is good to see some wheat move out of there at this time of the year as it is harvest and in theory if the wheat moves now it becomes more expensive to get out of bins after harvest. 

The technical action in the wheat market was on the horrible side of things once again today.  As we are now 40-50 cents off of our highs from just a week ago.  Those highs where against resistance in some contracts and with the sharp rise up it could be tough to find solid support; on the positive side of things all good markets have corrections and as the above comment refers we really didn’t break any major support level. 

The reality is that our price as we go forward probably simply follows the three main same factors as it typically does; funds and their money flow, fundamental changes, and fear.  Fundamentally we won’t see a lot of new news but how our exports go and what weather does for the size and quality of the crops will make a big difference over time.  The fear factor could simply be why we are where we are at; but we also need to watch out for the emotions be it fear or greed overdriving market reaction and we could easily see fear of inflation or fear of running out of XYZ commodity (as example corn, high quality wheat in Europe, Cotton, Beans……etc) all have spill over effects for the grains.

As mentioned yesterday the best thing I have liked about the recent rally is the fact that we still had buying interest and seen basis and the board go in the same direction.  That doesn’t mean we bounce right back but it leaves the door open to a bounce at any time at least until that fundamental outlook changes.

This communication makes no representation or warranty regarding the correctness of any information contained herein, or the appropriateness of any transaction for any person.  Nothing herein shall be construed as a recommendation to buy or sell any commodity contract.  There is a risk of loss when trading commodity futures or options.

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