Markets closed mixed today in a rather choppy quiet session.
Corn closed down 3- to up 2 with the deferred months gaining
on the nearby, beans closed up 2 nearly 20 cents off of the lows, KC wheat was
off 4, MPLS wheat was off 3, CBOT wheat was off 4, DOW was off 13, crude was down
80 cents, Gold was off over 20.00 an ounce, and the dollar was weaker.
Not bad price action at all for beans and even wheat and
corn bounced a little bit off of the lows; but still disappointing compared to
where the markets where at one time. Not
much to really blame the weakness on today; but it was negative to see spreads
work wider; mainly in corn. As spreads
work wider it isn’t exactly strong demand sign.
A little weakness came from Taiwan buying Brazilian corn;
from what I heard 60 cents a bushel cheaper then US corn. Basis is defensive a little bit today as it
just seems like there is a hair too much corn north of us that is flowing down
to our typical buyers cheaper then what local guys are willing to sell
for. Ethanol profitability probably
doesn’t help this at all. Tomorrow we
should have the weekly ethanol numbers out; we really need to stay above what
we need on a per week basis to meet current USDA forecast because seasonally we
usually see a nice slow down in the summer as plants due maintenance and there
just isn’t enough corn to source cheap enough.
That in itself is bullish but it also can turn bearish in a hurry when
you end up curbing demand.
Not a lot of new news for direction this time of year. We should focus on weather in South America,
demand, and the funds.
Presently weather isn’t
perfect in South America but I don’t think it is a bull story either. Only potential thing I have heard about is
too much water leading to weak stand’s that could cause yield drop should we
get hot and dry. Weather is supportive
prices in the US as it remains dry everywhere but that is and has been old news
for some time.
Demand side of things is mixed; corn demand isn’t anything
special as end user profitability struggles and we just are not in the export
market. Wheat you could say demand has
picked up; but not really for milling quality wheat as we simply are not
getting any HRW export business to speak of.
Soybeans have had strong demand; but enough to push us back to the
previous highs? It doesn’t seem like it
right now.
The funds don’t seem to be playing our game right now; more
are worried about possible tax implications and the fiscal cliff then anything
so it seems like money is an outflow from investments and grains in
particular. I have said many times if we
are going to rally we need the funds involved and for them to get involve we
need good headline story.
The headline story isn’t here today; could it be in the next
few weeks or months? Sure; but today it
isn’t here. I think we all can think of
plenty of possibilities that could be that headline such as a bullish Jan USDA
report, strong demand, continued wheat production problems, or continued dry
weather. Plus a hundred other things. But there is also another hundred negative
things that could happen.
One thing that has stuck out to me the past couple of weeks
is volatility in options in our market place.
Volatility is extremely low; meaning options are fairly cheap. So perhaps now isn’t the worst time to
consider getting some protection. Volatility
for some of the grains has dropped as much as 20%; which means options are
cheap. So perhaps now isn’t the worst
time to consider protection some of bad possibilities that are out there while
yet looking for higher prices.
If we seen volatility jump 10% most options would increase
in value dramatically. As example an at
the money put option would cost nearly 14 cents more for March Corn, 15 cents
more for March wheat, and 26 cents more for March soybeans. While puts 50 cents below the money would be
double the cost for both corn and wheat while a March 14 bean put would
increase by 25 cents. Bottom line is I think
the market is providing an opportunity to make a good business decision and
that is getting some rather cheap protection.
Most ag options are seeing volatility as low as they have for nearly 10
years.
If you need help looking at what protection might fit best
for you and your operation give us a call; keep in mind we do offer CHS Hedging
services. Keep in mind that the above
option talk might not be the right move for everyone; buying a put option would
be a good move for someone that is nervous of the fiscal cliff, nervous on corn
prices because of the lack of ethanol profitability, or nervous for prices in
general; yet they really don’t want to sell.
In the case where one doesn’t want to sell yet wants protection buying a
put option can be a way to help lock in a good min price level; another option
is the simple min price contract. To see
which tool might make most sense for you check out presentation from 2012 Ag
Horizon’s at http://grainmarketingplans.blogspot.com/2012/11/tools-and-considerations-in-grain.html
A couple of announcements don’t forget we will have our weekly MWC
Marketing Hour Round Table meeting in Onida on Wednesday’s at 3:30. Also
make sure to mark your calendars for Dec 19th and Dec 20th for our marketing
meetings in Philip and Pierre where we will have Tregg Cronin and Kevin Van
Trump speaking.
Jeremey Frost
Grain Merchandiser
Midwest Cooperatives
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