Wednesday, January 2, 2013

closing grain market comments 1-2-2013 - horrible start for grain prices

Grain markets closed ugly today despite the fact that we did not go over the fiscal cliff.

When things where all said and done today corn was off 6-8 cents, soybeans were down 13-17, KC wheat was off 20 cents, MPLS wheat was down 24, CBOT wheat was off 23, equities bounced with the DOW up over 308 points, crude was up about a buck, and the US dollar was near unchanged.

Very disappointing day especially when you go searching for highlights on today’s melt down; as one couldn’t find much new fundamental information; as today’s melt down in the grains didn’t seem to have much to do with supply and demand but rather more fund technical liquidation.

The charts look ugly after today; last week we had some great wheat export sales and it looked like perhaps we had a bottom in place on the charts.  Now the charts remain wide open to the downside.

Part of the catalyst for today’s price action was the fact that as part of the “cliff deal” was a $1 tax credit for biodiesel that was retroactive for 2012 and set for 2013.  This lead to some spread traders on the wrong side as most of the market has been long soybean meal and short soil oil.  I think this pressure spilled over into the beans in a hurry and that pressure quickly moved to the other grains.  Once wheat got back to about unchanged it started to hit technical sell stops; as did the other grains.  Bottom line is when the day was all said and done we seen plenty of technical selling despite the supportive outside markets.  I wonder what could have happened to the grains today if we would have fallen off of the fiscal cliff?

The wheat charts all look like the saying “catch a falling knife” and what is scary is technically it’s not like we know we are even close to a bottom.  I would point out that fundamentally we are starting to see some small positive signs.  Such as this afternoon I had a buyer asking for an offer on a tender they have coming up.  Last week’s export sales for wheat where very strong.  So it appears that we are getting close to finding some demand.  But until the funds decide to stop getting short or find a reason to get long the path of least resistance remains to the down side.   Longer term the recent price break isn’t all bad because our supply story or horrible crop story is still out there; so if we can boost up some demand and then scare the market with a  fear of supply we could in turn someday have a bull market.

We do need to keep in mind that if wheat is going to have a bull market; it has no reason to do it now.  We are not going to run out of wheat anytime soon and unless we pick up demand it won’t matter how much we don’t raise next year.  Realize that shorter term we really need plenty of bullish factors for wheat to turn around.  Longer term plenty of positives remain; but the recent price break and talk of downside risk should remind us to use good risk management. 

Right now basis is fairly good so perhaps now wouldn’t be the worst time in the world to look at a min price contract.  Selling the cash grain and re-owning via a call option.  For some that might not be the worst option in the world if you are still worried about our economies despite the band aid fiscal cliff fix or if you are looking for cash flow yet are bullish.  Volatility is also on the low side so min price contracts or options in general are not too terrible expensive.

If you want more option on a min price contract or anything to do with futures or options please give me or one of the guys in the office a call.

As for other news out there today; I really didn’t see much.  Basis felt a little better today; but also still felt thin.  Plenty of buyers are still out; but volume did seem to pick up a little bit today for most of the commodities.

As for going forward if we are going to get a bull market one bullish card could come from the USDA Jan 11th supply and demand report were we will get updated quarterly stocks, winter wheat acres planted, and updated S & D numbers.  Last year at this time the bullish thing out there was South American weather; so far no bullish card in the deck for weather.  Other possible bullish cards will be demand, and outside markets.  But those cards could easily turn up to be bearish cards.

It really feels like we are in the hope stage of marketing; and it is scary when one of the best reasons I can give for a bounce is just the fact that many are getting too bearish grains.  But that too is positive and perhaps the fact that our markets are a little unbalanced eventually leads to a positive turn around.  But for that turn around to be anything more than a short term turn around I am convinced we need one of two things, A solid demand and or B a headline story to get the funds acting impulsively and hopefully this time that impulsiveness will be on the buying side.

I seen an email today referring to 2012 versus 2013 on Dec corn.  It was kind of scary and interesting.  It showed that the Dec 2012 contract had made it’s high’s last year on the first trading day of the year.  Jan 2nd; and slowly worked its way lower until about the middle of June when it bottomed and sky rocketed up on the drought.  The Dec 2013 corn contract is starting at about the exact same spot as the 2012 contract did a year ago.  I am not as bearish as some longer term because I believe the sub soil issue is for real and it will take plenty of water to fix our present drought situation that covers most of the corn belt.  But what could happen is also scary if we do have a perfect growing season.  The possibilities for new crop corn realistically range some place between 3.00 to maybe as high as 10.00.  I think I could argue plenty of numbers in between.  So proper risk management might mean that some want to get a little more pro active in case we don’t see that headline story that gives us a chance to sell better numbers.  I don’t mean to go out and say the sky is falling and you should have everything sold.  Because I for one do not know what will happen for sure; but I do know that having some small sales in place or having some put protection in place might not be the worst thing in the world for many operations.  If you need help with your marketing or would like to write up a grain marketing plan please give us a call.

Lastly I want to remind everyone that we are now offering free delayed price on winter wheat and spring wheat. 

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

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