Markets where called firmer this a.m. behind a firmer overnight session that was once again lead by wheat as MPLS and KC wheat continue to make new highs for the recent moves.
In the overnight session corn was up 7-8 cents, beans where up 6-10 cents, MPLS wheat was up 9, KC wheat was up 8-10, and CBOT wheat was up 10-11 cents. At 9:20 outside markets are supportive European wheat is up 1-1 ½ percent, the US dollar is softer with the March at 78.055, equities are slightly firmer with the DOW up 33 points, and crude down about 20 cents.
Markets started near same levels as they left off the overnight session at; but where able to continue to show strength as the day went on as wheat lead the bounce up. We did look like for a little bit that we might see the row crops pull the markets lower; but wheat’s strength end up spilling over into those markets. The close was good all around with the only disappointments coming from corn still unable to take out last weeks highs and CBOT March wheat still unable to take out the Aug 6th highs.
When all was down corn was up 12-14 cents, KC wheat was up 22, MPLS wheat was up 21, COBT wheat was up 18, crush nearby old crop sunflowers continued their strength up a dollar a cwt, equity markets closed slightly positive with the DOW up 8 points, the dollar is still softer with the March at 77.880, and crude was up about 1.50 a barrel.
All around a great day for the grains; as mentioned a little disappointing that corn wasn’t able to take out last week’s highs or the key reversal left on the charts a week ago. Wheat technically looks good; perhaps great as not a lot of resistance at these levels; the big level would be that in the form of the Aug high left on the CBOT wheat; as it is still about at dime away. The interesting thing is that MPLS wheat as example is a 1.25 or so ahead of it’s highs from the same period. How this spread has changed really helps show one how fundamentals and emotions can effect marketing. If you would have hedged the undervalue spring wheat against CBOT soft wheat back then the spread would have made up enough to still get your rather firm numbers and if one would have speculated and bought MPLS March; sold CBOT March; you could have added over a dollar a bushel to your bottom line thus netting nearly 11.00 on a cash sale based on today’s closes.
Why this happened like it did is really the important thing as it shows that fundamentals end up out weighing fear and eventually supply and demand (quality) can even out weigh money flow.
When we look back at the correction we had last August after spiking up to the levels we did what was the marketing saying. To me with the rather ugly basis it was saying a lack of upfront demand or at least not enough demand to offset the supply; while shorts where squeezed fundamentally it was hard to justify a rally straight up until or unless supply continued to soften (much like it has) and that had to happen while demand stayed flat or firmed which it has. Today we are starting to see similar signs on demand; when we look at the grain markets in general.
Ethanol spot margins are pegged to be in the red 30-40 cents, broiler margins are in the red, and many birdseed margins like black oil sunflowers appear to be in the red. So based on that we really need to watch things for potential reversal signals at anytime; as we do have the length and setiment of the market place also very long and bullish; so if we continue to see margins that don’t work watch out for ECON 101 to take over perhaps it means we soften demand and also increase supply in front of it?
Overall I think there is still plenty of upside potential; but we need to watch out for an extended period of negative margins for those that buy our grains.
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