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. 

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