Monday, October 24, 2011

Grain Market Comments Closing 10-24-11 Another poor corn close?

Markets closed mixed to firmer today.

Corn was up 2, beans where up 14-15, KC wheat was up 12, MPLS wheat was down 1, CBOT wheat was up 10-11 cents, crude was up nearly 4.00 a barrel, equities where firmer with the DOW up 105, and the US dollar is presently weaker 200 at 76.198.

Technically today’s performance by corn wasn’t the best as we appear to keep breaking out but yet closed well off of our highs once again.  Harvest pressure showing up someplace?

The main headline continue to be a lack of producer selling; with spreads tightening and basis firming as noted in our bids today.  I believe we firmed up nearly all of the corn, wheat, and soybean slots and this hasn’t been the first time in the past couple of weeks that this has happened.  We are quickly nearing levels where one might want to consider locking in the basis (especially for those of you with good HTA contracts out there) or at least having basis offers out there.

 Buyers are hunger in the sense that they simply haven’t got the supply that they are used to; plus going into this fall harvest pipelines where not exactly full.  Add to that the fact that most producer operations have more storage then ever, less need to sell then ever, and borderline as bullish as anytime in the past and we have very solid basis appreciation that has been happening the past couple of weeks.  When it ends who knows, in marketing 101 what is suppose to happen is basis is suppose to appreciate, then board spreads are suppose to firm, followed by a rally in the board to help pry loose the grain from the producers.  Also in theory basis and the futures offset each other in cash movement.  Which is why if one feels strongly that the board has plenty of upside room doing a basis contract or having a basis offer out might make perfect sense.  In the basis/cash/futures theory when the board goes up basis goes down; when the board goes down basis goes up.  The past couple months or so we have seen it happen where the stronger basis has helped out the weaker board; and now we appear to be in consolidation mode on the board.

If the breakout from this consolidation is to the upside then we do open the risk to basis coming under pressure in the future.   Whether basis stays strong or see’s some weakness on a rally in the board will probably demand on what causes the rally and how strong our demand actually is.  My opinion is that our demand is more of a lack of supply because of bullish producers versus super strong competitive demand. 

If you would like more information on basis contracts and how they work please feel free to give us a call.

The one market that hasn’t followed suit yet in strong cash markets has been the birdseed market.  Lack of demand or maybe it’s time is yet to come?  One thing that will hang over the sunflower market for sometime will be the big world crop.  Perhaps that is why the birdseed market is still a $5.00 or so premium to the crush market.  The huge world supplies of all of these grains along with fund money flow remain one concern when looking at the downside risk.  Add to that the fact that it feels like producers simply are not selling enough and I think we have created markets that have plenty of downside risk even though today things feel good or look good.

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


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