Monday, November 7, 2011
Opening Grain Comments 11-7-11
Markets are called mixed this a.m. behind a mixed choppy overnight session as well as choppy outside markets.
In the overnight session corn was off a penny, beans where down 4 cents, KC wheat was about a nickel higher, MPLS wheat was down 2, and CBOT Wheat was up 2. Outside markets at 9:15 have equities slightly firmer with the DOW up 33 points, Crude is up about a dollar a barrel, and the US Dollar is weaker with the Dec at 77.05.
This week is a report week so ideas are that we chop around until the report comes out on Wed a.m. and perhaps that report will give us a catalyst to break out of the recent trading range we have had.
Estimates for the USDA report are for carryout’s of 801 million bushels of corn which is down from last month, 185 million bushels of beans which is up from last month, and 819 million bushels of wheat which is down from last month. Slight decrease to no change is the overall trade guess for corn and soybean yield.
Basis has been very strong for most of the grains. Lately many have been doing some winter wheat and spring wheat basis contracts. I think this might be a good move; especially if we do eventually get a run on the board as the typical relationship between futures, basis, and cash price is one where basis offset’s the moves in the board. Basis is strong and ideally if the board starts to run basis would then weaken; especially if the rally isn’t demand orientated or lead.
With the firm basis we have started to offer Free Delayed Price on both winter wheat and spring wheat until July. The reason we offer this is a two fold reason; one is because we want to increase movement; but the other reason most end users offer delayed price is they have a bias towards the direction of the price. In wheat’s case it is a basis bias; and that bias is that it will be wider or worse later; especially when you add the inverses that are out their in the flat price of both winter wheat and spring wheat.
Spring wheat has a flat price inverse of over a dollar a bushel versus the new crop bids. One reason many struggle to move wheat in our area has been the off quality. But with the inverse that we have it still makes since to move the wheat now versus sitting on it and trying to blend it off at new crop train.
As example say you have some wheat with low test weight and have VOM; flat price it might only be worth 8.00-8.50 or so today; but that is still about 50 cents to a dollar better then #1 14 pro new crop spring wheat. So just because there is a discount doesn’t mean one should sit on it and hope to be able to blend it off next year while taking no discounts as bottom line it just isn’t the right business decision. It would be a choice that could work out and work out well but basis on spring wheat is inverted big time as well as the board. Those inverses more the pay for the discounts that one might see.
Add to that the fact that some are willing to take the off quality wheat now; when they where not at any level just a few months ago. Bottom line is the market is looking for wheat, hence the strong basis, the free delayed price, and the flat price inverses that are in the market. The question when marketing should become why are they looking for the wheat. Is it strong demand or perhaps just bulled up owners of the product. Do we have more supply then we do demand? I would say big time; but that supply is in hands that don’t need or want to move it. What happens if/when that changes?
Don’t forgot that each Wed we are still having our MWC Marketing Hour Round Table. Our attempt in this is to have some sort of Marketing Club in the future. We hope to see you there this week.
Labels: Beans, charts, Charts and Strategies, commodity price risk management tools strategies grains futures options money cash flow, crop conditions, Delta Neautral Trading, Leverage Optoins Futures, Marketing Tools, MWC Marketing Hour Round Table, opening grain comments, option selling, Price Management, USDA Crop Report Supply and Demand