Tuesday, June 28, 2011

Closing Comments 6-28-11 - Charts and Strategies

Markets where called better this a.m. behind a firmer overnight session, supportive outside markets, and oversold conditions.

In the overnight session corn was up 7-8 cents, beans where up 12-14, KC wheat was 11-12 firmer, MPLS 8-12 firmer, and CBOT wheat was 9-12 cents firmer.  At 9:20 outside markets are adding support with crude up a little over a dollar a barrel, equities have the DOW up 90 points, the US dollar is softer with the Sept down 393 at 75.435, and European wheat is 3-3 ½ percent firmer.

With the huge sell off we have seen over the past couple of weeks a little profit taking or position squaring into this week’s stock’s and acre report is expected; perhaps that can lead to the upside getting over done as the next couple of day’s sessions unwind.

Fundamentally not much has changed in our markets since the last USDA crop report; but we will have some potential changes off of the quarterly stocks and planted acres number which comes out Thursday June 30th.

Idea’s for the planted acres on this week’s report are 90.7 million acres of corn; which is a big increase from last year’s 88.2 million acres; but a decrease off of the March report and unchanged from the June report where they updated acres even though they typically don’t.  Soybean acres are pegged at 76.5 million acres which is off from last years 77.4, but very close to where the March numbers came in at.  Spring wheat is pegged at 13.35 million acres which is a slight decrease from last year’s 13.7; but the market is expecting a rather sizeable decrease from the March planting intentions report where 14.4 million acres where estimated.

In my opinion planted acres above 92 million for corn shoot us limit down potentially starting a change to the balance sheet for a long time; while acres below 89 million or so potentially push our markets limit up.  One of the big wild cards will be and is the stock’s numbers.  If you remember the couple of year’s these reports have had rather big swings from time to time; where they seem to find or lose a couple hundred million bushels on a regular basis. 

Even though the report out this week should really set the stages for fundamental price direction for some time to come our longer term price direction and actual fundamentals really come down to mother nature; what the weather does and what money flow does or doesn’t do continue to outweigh what one things logically should happen.

As one can see I didn’t get these comments emailed out this a.m. but the thoughts of today’s price action where in line as our markets closed firmer; and sharply firmer in many of the markets lead by corn and supportive outside markets.  Technically we may set stages where Thursday’s report can act as a catalyst for confirmation that markets have reversed back towards the upside with last week’s sell off being a last ditch panic sell or the price action the past couple of days will end up looking like a normal correction in markets that technically are on the weak side of things. 

Personally I love the price action the past three to four sessions if we are going to have an attempt to see higher prices; as we seen basically an exhaustion gap on last Thursday’s opening followed by doji’s left on the chart as we bounce well off of the lows.  The market then went back and tested those lows yesterday and has since bounced rather well.  Fundamentally weather is ideal in many of the areas that have the crop planted; but plenty of areas have lacked heat units while overseas there has been some talk of dryness in the Russia crop.  Could that start a wheat rally similar to what we seen last year?  The funds are sitting similar in that they are short plenty of wheat (CBOT) and the spreads are rather wide.

The price action of the Equities, crude, and the US dollar is also on the supportive side or at the very least has re-opened the doors that the sell off the past month or so was just a correction in longer term bull markets; this would be another supportive factor for our grains.  For more technical information please take a look at the attached charts.

When the dust settled out today we seen old crop corn up 22-26 cents, Dec corn was up 26, KC wheat was 15-16 cents firmer, MPLS wheat was up 30, CBOT wheat was up 18-21, beans where 1-4 cents better, crude over 2.50 a barrel firmer, equities up strong with the DOW 145 points higher, and the US dollar was softer with the Sept down 393 at 75.435.

Overall a good day to see and probably a long over due day with our oversold conditions that we have had in our markets with the massive sell off we have seen recently.  Basis feels firmer across the board for all of our grains; part is from logistics so that makes it hard to judge; but overall there seems to be more demand then supply.  The birdseed markets are similar in that there is very little supply out there; but the bids are even harder to find; so that market is really a waiting game; if buyers need coverage it won’t be cheap but if you have to call to find bids they won’t be as high as one hopes.

As a reminder we do have our MWC Marketing Hour Round Table Wednesday in Onida at 3:30; we hope to see you there.

Monday, June 27, 2011

Opening Comments 6-27-11

Grain Markets are called mixed to weaker this a.m. behind a weaker overnight session with mixed outside markets.

In the overnight session CBOT Wheat was off 8-11 cents, KC wheat was off 11-12 cents, MPLS wheat was down 7-9 cents, Beans where off a nickel, and corn was off 5-6 cents.  At 9:00 equities are slightly firmer with the DOW up 50 points, the US Dollar is softer with the Sept down 285 at 75.925, European wheat is off about 2.5%, and crude oil is down about 80 cents at 90.40 a barrel.

There was an announcement of a private sale of corn this a.m. for 230k tones; perhaps this adds more China buying talk to our corn market.  China did buy some beans this a.m. purchasing 132k tones of old crop beans.  The USDA also announce private export sales of 100k of HRW to Iraq; the destination of the sale was previously marked as unknown.

The little bit of business around along with outsides bouncing and the very oversold conditions could give us a chance to bounce a little bit off of our overnight session. 

In case anyone missed it our markets have been a little volatile over the past few weeks; that stemmed from tight fundamentals on the last USDA report which pushed us to new highs followed by massive selling pressure which seemed to be due in part to the weak outside markets but also the fact that we just had too many too bullish. 

Going forward weather (and what it does for yield) along with money flow (which should be influenced from the outside markets) should give us our market direction.  If we end up seeing yields much below trend line we likely have to curve demand or we go much higher; while if we see yields and supply bigger then expected there is tremendous downside risk.

Right now to me it feels like we have set the stages for this week’s crop report with updated stocks and acres to define how we go for the next couple of months.  There is risk out there that we see the USDA throw up bigger then expected stock’s numbers which in turn gives us more starting supply for next year.  If that happens along with more acres then what the trade is expecting we have a chance to turn our fundamental situation in terms of carryout to something that is tight to comfortable in a hurry.

One thing that is friendly and has been friendly for some time is the firming basis numbers seen; by both corn and winter wheat.  Both show good solid demand behind these grains and that indicates that we should see the futures markets follow.  As example how strong should we view the corn market when we compare to 2008.  If we look at the basis now versus the basis back then we see that we have a basis firming or been firming for several months despite the high prices.  That in it self says that plenty are nervous that there might not be corn out there when they need it.

As for marketing keep in mind that even though our prices have broke hard recently we are still well above a year ago levels; corn is still about double what it was a year ago.  KC Wheat is about 3.00 a bushel higher then it was in June of 2010.  If one remembers the mindset of the market place and the ideas of where price direction was headed a year ago it was very bearish and now looking back we see that it was simply too bearish; too many where thinking prices had to keep getting softer.  Our risk now is that we are seeing the opposite happen; maybe the free fall started a couple of weeks ago?  Meaning we had nearly a year long bull market.  Maybe it simply turns out to be a correction.   Bottom line is with the risk we have out there along with the possible upside potential the only smart thing to really do is practice good solid risk management in your marketing plan.  If you don’t have much sold; don’t be afraid to make some sales here and there so you are spreading out your risk and doing so at still profitable levels.

Please give us a call if there is anything we can do for you.

Thursday, June 23, 2011

Charts 6-23-11 - Did the grains just put in the lows and reverse back up? Closing Comments

Grain Markets closed mixed today in another very volatile session as we seen huge swings in corn and wheat while the outside markets got hit hard.

Old crop corn closed up 3 cents, new crop corn was off 4 cents, beans where off 12-15 cents, KC wheat was down 10 cents, MPLS wheat was down 16 cents, July CBOT Wheat was up 11 cents, Dec CBOT wheat was off a nickel, crude oil was off over 3.00 a barrel but that was over 2.00 a barrel off of it’s lows, the US dollar was firmer with the Sept up 527 at 75.715, and the equities closed weaker with the DOW down 60 points.

On the surface nothing above looks too great; but when you consider the fact that CBOT wheat close 43 cents off of it’s lows, July corn 41 off of it’s lows, and the DOW 175 points off of it’s lows; the price action or close has to be considered good to great.  Perhaps we finally flushed out all of the weak longs while running out of sellers in today’s panic type action that we seen on the open.  Both the wheat and the corn market opened down very hard compared to where the overnight session had left off at; not a real big surprise given the weak outside markets we seen this a.m.

Attached are some charts for more technical information.  I personally think (maybe I should say Hope) that today’s price action gives our markets a chance to rally into next week’s USDA report.  But only time will tell if the little bounce off our lows is just a selling opportunity in a big market that has turned bear or the past 10 days has been a buying opportunity before moving to higher levels.  The main longer term components that should drive our markets remains weather, money flow, the overall world economic situation, and how those factors effect the demand / supply situation.

The spread price action that we seen today with the front month’s gaining on the deferred was a good sign of possible demand; especially given the fact that we have high open interest left in the July corn contract; perhaps end users buying the board to take delivery?  The CBOT July contract leading the wheat market was also nice to see; but that could have simply been short covering.

Basis remains steady to firmer for corn and winter wheat; while spring wheat basis has been hit very hard behind many end users finally getting applications as many are now getting double booked.

Today’s price action doesn’t mean that we will go up or that we will continue to go down; it perhaps provides clues that at least the nearby pressure could ease.  But more then anything today’s price action as well as the price action the past 10 days tells us that risk management with risk diversification is nearly a must.  Don’t be afraid to spread the risk out as we really don’t know which direction the next major move will be.

About 2 weeks ago we had a friendly USDA report out that kept our supplies tight for the corn crop; we made highs the day of or after the report in the corn markets.  Since then we broke a 1.60 off of those high’s in July corn and we haven’t changed the fact that we needed to ration off some demand or increase supplies or our balance sheets remain historically tight.  Mother nature will help decide the supply side of the equation; but on the demand side we have seen margin levels for all of the major buyers off corn go from borderline profitable to very profitable.  It doesn’t look like the lower prices have rationed away the demand; perhaps just added to it. 

Tuesday, June 21, 2011

How do I hedge my 2012 corn crop and come out with the best return?

How do I hedge my 2012 corn crop and come out with the best return?

Below is a look at a few charts that tell us how history says one is suppose to hedge the big bull markets; as always it doesn't mean it will be the same this time around.

The heart of the question is if a producer has a good idea and portion of his costs of raising his 2012 corn crop how does he go about marketing it.  Forget the method for starters; let's go right to the heart of the matter; where does one place his hedges.  Should he really sell 2012 at a discount to 2011 if the reason he is selling is he thinks prices will go down?  Probably not because softer prices usually go along with more supply thus creating a carry in the market or at least taking away part of the inverse that is presently out there.

Where would the old school say to hedge it at; on this I know I have learned via being a grain merchandiser one is simply suppose to place hedges where they belong or you might get burned and if you get burned too many times you will be sleeping on the street.

So there you have it; old school versus the bear market theory; bear market theory says place your hedges in the Dec 2011 crop while the old school says that might work most of the time but the one time it doesn't work.  OUCH!

Personal opinon is that ECON 101 will rule out thus causing increased supply with decreased demand therby creating a bear market sometime in the next 5-6 months therefor I place the hedges in the Dec 11 all day long until I see that we are going to have much supply come Oct-Nov.  My thinking that is we always see some sort of harvest pressure; I have never went a year not seeing grain piled some place or another during the winter and I don't think this will be any different.

Here are some charts that might help you make your decision.

Oh by the way if in 2008 you would have placed your 2009 sales in Dec 08 futures you could have hit over 8.60 a bushel for corn; while the high of that Dec 2009 contract was 7.00 ish.

Wednesday, June 15, 2011

Opening Comments 6-15-11

Below is a forward from Joel Fitch from Country Hedging; he will be here for next week’s Midwest Cooperatives Marketing Hour Round Table which is every Wednesday in Onida at 3:30; don’t forget to mark it on your calendar and as a reminder we will have the meeting this afternoon.  Please call as space can be limited.

Markets are called steady to mixed this a.m. with a weaker outside market tone along with a mixed overnight session and ideas that price rationing is starting to occur, weather is better, and funds remain long just looking for reasons to liquidate.

In the overnight session old crop corn was down 4-5 cents, new crop corn was off a penny, CBOT wheat was unchanged, MPLS was off a penny or so, KC wheat was off a penny, and beans where up a penny or so.

At 9:00 outside markets have European Wheat up about ½ to 1 percent, equities are weaker with the DOW off 85 points, crude is off about 40 cents, and the US dollar is up 723 on the Sept at 75.415.

Outside markets are rather similar to slightly better then they where when the grains left off; but some are talking about more fund liquidation in the grains.  Fundamentally the break in prices shouldn’t hurt us as it makes us more competitive in various ways. 

Yesterday the Senate did vote to keep the present blenders credit; which in theory should have helped our corn bounce a little bit; which it did right away in the overnight session but it didn’t manage to keep the strength which is disappointing.

Basis remains strong but we are starting to feel a little pinch for grain needing to move before wheat harvest; thus I would guess basis appreciation could be very hit and miss as we go forward.

Please give us a call if there is anything we can do for you.

Tuesday, June 14, 2011

The Commodity Price Sky is falling........or is it just another natural correction in a bull market for grains?

The Commodity Price Sky is falling........or is it just another natural correction in a bull market for grains?

Below are some charts to help you decide if today's price action was natural in nature, maybe a "head fake to scare producers into sales" or if the tide has turned.  My personal opinion is that it is a correction but if we follow up the weakness much more threw these support levels I think I will be jumping on the boat that the rally is over.  My thoughts for some time have been to simply manage risk and try not to pick a top; but if I have to pick a top I think it happens a little closer to the June 30th report; much like it did in 2008 and simliar to how the lows where made last year on June 29th.

Make sure you take the my opinion for what you paid for it.

Here are a few charts showing some various support levels and thoughts on where we might be heading from here.

Sunday, June 12, 2011

Neutral Nick update up over 18 million; not bad on 300,000 bushels

Neutral Nick updated his position on a day when he probably should have simply exited everything with a rather nice 18 million or so gain.

Mr Neutral did do something a little different today as he took some off the top and took a little risk away; but still if he would have simply closed his positions he wouldn't have had any risk going to the bank and cashing in.  The reason why Nick didn't do the right thing is because it wasn't in his plan; perhaps next week or in the next few days he will change and get out like he should?

Today's trades where as follows in soybeans he bought 190 of the 14.00 July soybean calls; which got him back to around 100k bushels of sold in delta terms. 

For corn he sold 2000 of the 7.80 puts, sold 670 of the 8.00 calls, and purchased 1750 of the 7.50 calls.  Once again all July; and if one recalls his marketing plan will end in 12 days one way or another as that is when all of the July options expire.

For wheat he used July CBOT options and sold 1310 of the 7.80 calls, purchased 1000 of the 7.50 puts, purchased 500 of the 7.30 puts and purchased 550 of the 8.00 calls.

Below is a consolidated view of all of his trades as well as profit projected and present.

A couple things that really stick out are the amount of trades needed or done for corn and wheat versus soybeans.  In the beans he has had to trade far less quanity and he is up more.

Keep in mind that futures and options are risky and not suitable for all and past performance doesn't mean similiar future results nothing in this blog is a trading reccomendation.