Market Comments 7-28-11

Markets are called mixed this morning behind a mixed overnight session and mixed/choppy outside markets.

 

In the overnight session  corn was off 3 cents, KC wheat was up 7-8 cents, MPLS wheat was up 6, and CBOT wheat was firmer by about 6 cents.  At 9:20 outside markets have crude up about 45 cents, equities are slightly firmer with the DOW up about 20 points, and the US Dollar is up about 175 with the cash index at 74.45.

 

News in the market place today include info on the Spring Wheat crop tour; which continues to find a little disappointment on projected yields along with comments of short acres.  Last estimate I seen was 42.1 bpa versus 46.3 last year.  I have also seen some commentary talking about dryness in Europe along with quality issues on their wheat quality; first it was quantity and now it is quality that the market appears to be concerned with. 

 

Ideas for the spring wheat crop tour are that of a smaller crop then last year; as mentioned above; but what is really important or a gauge will be the crop in comparison to trade estimates and demand.  One comments I have heard is that storage increased in ND a lot the past few years and with the drop in quantity the bins might be locked up so to speak.

 

Basis is a little weaker across the board for most of the grains as demand just isn't anything super special and we seem to have just enough supply.  For wheat what we really need is some export business because with harvest hitting us we are fast taking out the domestic marketplace and the improvement of freight has also helped increase supply.  I would look for basis to continue to weaken at least locally until we finally hit a harvest low which in theory doesn't happen for a good month or so.

 

Technically markets have really been trading consolidated and in sideways markets.

 

 

It is now about about 11 and the markets really have traded on the quiet side; with ranges rather small as we have corn in the red while wheat is steady to a couple better.  We did have wheat test the overnight highs but so far we haven't been able to hold those levels.

 

During the last couple of hours we seen the grains continue to chop around; with them bouncing around noonish to get close to unchanged/positive only to sell off in the final minutes of trade

 

When all was said and done we seen corn close down 9 cents on the Sept, while Dec corn was 5 lower, beans where off 9 cents, KC wheat was 5 lower, MPLS was down 4-5, and CBOT wheat was down 12 cents.  Outside markets have crude down about a quarter, Equities couldn't hold their early gains as the DOW closed off 62 points, and the US dollar is up 112 on the cash index at 74.197.

 

Technically today's price action was that off continued consolidation in a sideways pattern type of movement; we did see CBOT Wheat, MPLS Wheat trade at their highest level in about 9 sessions or so but we did close lower as they fell back into the trading range we have seen recently.  KC Wheat and Dec corn both came within a penny or so of yesterday's highs but both also failed to take it yesterday's highs out or close higher.

 

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

 

Thanks

Info on Option Trade of Week- Bull Call Spread Min Max Contracts

Market Comments and Info on Types of Contracts

Below are market comments as well as some info to better help one make a decision in regards to how to market the crop.

Markets ended the overnight session in positive territory with most of the grains up 2-5 cents.  Talk still remains centered on weather which isn’t as hot and dry as it was the last couple of weeks and that has a little pressure on the grains.  The other big thing is the possible debt default by the US and it’s possible effects on the outside markets and markets and economics around the world in general. 

At about 10:50 we the markets trading both sides; corn is up 3-4 cents as it appears to really be consolidating especially versus the type of moves we had been seeing over the past several months, MPLS wheat is off a penny, KC wheat is off 2-3 cents, CBOT wheat is off a nickel and beans are up 14 or so. 

Outside markets have a weak US dollar with the cash index at 73.604, crude is up about 20 cents a barrel well off of it’s lows and the equities are struggling with the DOW off about 70 points.  Trading action has been on the choppy side with ranges that are tight versus what we have been seeing.

We did have an announcement that Egypt once again bough Russia wheat because of cheaper prices.  That has help pressure the wheat a little bit and reminds us that we are not exactly the only seller in town anymore.   We do appear to need wheat acres for next year; but right now that doesn’t seem to be a big concern.  The spring wheat crop tour is happening and we should be seeing updates threw out the week.  With the crop behind development it will be interesting to see what the tour comes up with.

The markets did manage a nice little turnaround as at 1:30 last trades (not closes) are showing corn up 13 cents, beans 17 better, KC wheat 10-11 higher, MPLS 10 better, and CBOT wheat up a nickel or so.  The outside markets haven’t changed much in that the equities are slightly weaker with the DOW off 43 points, dollar under pressure and crude 40 cents better.  As for the reasoning on the bounce for wheat that only thing I have really seen has been corn’s strength, the weak US dollar, and dryness in the south as it relates to planting ideas and next year’s acreage.

Technically today’s bounce didn’t do much for either the bulls or the bears; as we continue to have chart patterns that look sideways or in consolidation mode waiting for a new catalysts to determine breakout direction.

Basis feels softer today on the wheat markets; spring wheat in particular as it appears we have the inverse starting to work out of that market.  Winter wheat is seeing pressure from South Dakota harvest and we appear to be lacking the freight concerns and export business that was a major part of the rally/basis appreciation seen over the past several months.

We have started to see more scab and vom in wheat coming into the elevators; please make sure to turn the combines up to try and blow as much out as possible as high levels can make the marketing of that wheat very difficult. 

**********************************Info on marketing and types of contracts********************

Below is a power point file that also has some information on basis contracts, min price contracts, and min max price contracts.  The 1^st thing that I would recommend before deciding which tool might be best for you is to determine one’s outlook on the market.  Based on that outlook you look at the slide above on marketing strategies and see which strategies fits your outlook and the lastly you consider the risk/reward if your outlook is correct or if your outlook is wrong and use that information to help you make a good risk management decision.  If one is risk diversifying then doing a combination of cash sales, basis contracts, min price contracts, and min-max contracts is what probably makes the most sense to do.  Then again if one is pro-active hopefully one has done the marketing that they want to have in place before the elevators go cash only which seems to happen each year.

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

Thank you

Below are slides showing the different type of moves possible depending on one’s outlook in the market; as example we are cash/contract only for winter wheat right now.  If one expects the futures price to go up then possible action includes a basis contract, min price contract (of which we offer a couple different kinds), Sell cash and buy calls, or sell the cash and buy futures.  If one is bearish then one simply sells the grain and uses no sort of hedging or one writes a contract

Grain Market Comments 7-25-11 Re-Ownership Options

Markets closed weaker today behind weaker outside markets lead by fund selling and weather that has seen moisture in many of the dry areas.

Corn was down 11 cents, Beans where off 16 cents, KC wheat was down 10, MPLS was off 8, CBOT wheat was down 4, European wheat was off about 1 %, the US dollar is near unchanged with the Cash Index at 74.110, crude was off about 60 cents a barrel, and the Equities struggled behind the inability to come up with a resolution to the debt ceiling as the DOW closed down 88 points.

Disappointing day for the grains but with the moisture that much of the dry areas received the price action wasn’t that surprising and with the weak tone the outsides had it could have been worse given the fact that we are still around a dollar off of our lows seen at the start of the month.   If one looks at the markets or charts from where we closed today at versus where they opened up at on Sunday night we really didn’t do much damage as many of the grains closed very similar to where they opened last night’s session; with a couple of them closing better then where they opened Sunday night at; so nearly all of the grains had either small candles or Doji’s left on their charts.  Technically the charts say to me that they are waiting for some catalysts be it weather or maybe the outside markets, or another supply/demand factor to help determine which direction the move will be.  Bottom line is my view on today’s technical price action wouldn’t be considered either bearish or bullish; just stage setting for the next big move.

Basis on some of the grains is starting to feel a little top heavy as we have seen bids soften as of late and for more then one commodity.  Buyers are showing coverage and a lack of demand in comparison to their interest over the previous couple of weeks/month.  It is still up in the air how much actual coverage buyers have on the various products but bids are softer.

As a reminder we are going cash, condo, or contract only for winter wheat at our locations.  Please call us for more details.

In regards to marketing you still have some options that you can do that help one retain ownership or control the pricing of one’s wheat despite us going to cash/condo/contract only. The two main options that one has are two different type of contracts, a basis contract or a min price style contract in which we offer two a regular min price contract and a min-max contract.

In a basis contract one is simply locking in the spread between our cash price and the futures price; right now as example we have a basis of -95 the KC Sept futures for winter wheat in Pierre.  If you do a basis contract against the KC Sept futures at 95 under your price would then follow the KC Sept futures not our local cash price; so as example if KC Sept was at 9.95 and you decided to price the futures portion of your basis contract you would receive 9.00 for your wheat.  If KC Sept went down to 6.95 and you priced the futures portion you would only receive 6.00 for your wheat.  The cost to a basis contract is nothing, there is no storage against the grain either and basis contracts automatically roll at that spread between future months around the 20^th of the month prior to the contract going off the board; so for a basis contract against the Sept futures you would have until August 20^th to price the futures or your contract would be moved to the Dec futures at what ever the spread between the Sept and Dec futures is on August 20^th.

Benefits on basis contracts is you have unlimited upside with no cost nor a timetable in which the grain has to be priced by; but on that same token you have unlimited downside risk and you can not participate in basis appreciation or if the basis narrows.  Presently basis is about a dollar a bushel better then it was a year ago; so just looking at that it maybe makes sense to look at this type of contract if you want to price your grain at a later time.  Please call if you have questions.

Min price contracts and min-max contracts are options that create a floor or a worst case scenario for one in marketing their grain.  I many times refer to these contracts like insurance in that you basically will be buying insurance so the better insurance you want with the lower the deductable and the longer you want the coverage the more they will cost you.  With our markets a little on the volatile side these are not exactly cheap; but they do help one create a worst case scenario while leaving upside room should the market move higher.  As an example one could do a min price contract using Dec CBOT wheat futures for about 6.15 min for delivery into Pierre.

One wouldn’t have margin calls and the cost of the contract would just come off of one’s price received.  The above example would expire on Nov 25^th.  If one wanted to go out longer it could cost more; if one wanted to try something without the big cost you would have a couple of options.  Go with a strike that is out of the money; the above was with an option at the money or at where the futures closed at.  For a strike price 50 cents above the market one would be able to get in for about 20 cents less or for about 6.35 net min price.    The difference being that if these contracts expire and one hasn’t exited the cheaper option would be further behind then the one at the money.

The last type of contract we offer is called the min – max contract; it is a contract where one sets a floor and ceiling; as example via using the 8.00-9.50 CBOT DEC Wheat strikes one could create a min price contract of about 6.52 with a max price of 8.02.  For one to achieve the max price we would have to have Dec wheat at or above 9.50 when the min-max contract expires.  This is an example where one is only spending 24 cents but has a chance to add on a 1.50; it is out of the money and the probability of the market running up that much might not be that high based on some opinions out there.  But it is a cheap way to have re-ownership with the only cost being known and upfront thus it might be an option for some to consider.

If you have questions on any of the above please feel free to give us a call; also note that we do offer a full line of hedging services threw our country hedging branch thus opening another way to participate in the market once the actually cash grain is priced.

Thank you

MWC Marketing Hour Round Table - Mock Trades for July 20th

Here are the open mock trades that we presently have in our Mock Trading Session that happens every week on Wed in Onida during our MWC Marketing Hour Round Table.

Present Open Positions/Trades for Jordan are as follows

Short 1 Nov bean at 13.88 with 2 long Nov 13.80 calls for 70 cents each; a trade that gives him a near neutral position

Short 1 Nov 12.00 bean put and short 1 Nov 16.00 bean call for a total of 49 cents

Short 1 Dec 8.00 corn call and long 1 15.00 Nov Soybean call

Long KC Sept Wheat from 7.62

Long KC Dec Wheat - Short MPLS Dec at a 37 cent premium to MPLS

Present Open Positions/Trades for Kevin are as follows

Short 1 Sept Corn at 6.88; with an objective to 6.44 and a risk on a closing basis to 6.98

Present Open Positions/Trades for Dan are as follows

Long KC Dec Wheat  short Dec corn  at a 1.08 1/2 cent premium to KC

Short Dec Corn at 6.77 3/4 with a risk to 6.98 3/4 and an objective of 6.22 3/4





Present Open Positions/Trades for Jeremey are as follows

Short 1 Dec corn at 6.79 3/4 with 2 Dec 6.00 corn puts sold against for 24 cents each

Ratio trade on soybeans; short 4 of the 15.40 calls, long 1 of the 13.60 calls for a net credit of 20 cents a bushel or $1,000; follow up plan is to roll short calls out if futures get near 15.00 ish on the Nov board; while on the down side buy back the short calls if trade can turn into a free trade at any point

Short 1 16.00 nov bean call and short 1 12.00 Nov bean put for a total of 38 cents

Long 1 Dec corn 6.80 call, short 2 Dec 7.30 corn calls, and long 1 Dec 7.50 corn call for net credit of 7 cents; basically a butterfly trade that was legged into

Short 1 Dec corn call; long 3 5.00 corn puts, long 7 of the 14.00 Aug Bean calls of which 3 where sold for 12 cents leaving 4 left - Net free cost when placed

Be sure to check back for updates or better yet come and join every week in Onida at Midwest Cooperatives.

Option Trade/Strategy of the Week - Ratio Spread

Grain Market Opening Comments 7-18-11

Markets are called weaker this morning behind a weaker overnight session, weak outside markets, and ideas that some of the deferred weather forecasts have a little more moisture in line.

In the overnight session corn was off 14-15 cents, beans where down a dime or so, KC wheat was off 11 cents, MPLS wheat was down 12, and CBOT wheat was off 15 cents.  At 9:25 outside markets have European wheat off about 2.5 %, crude is off about 2.00 a barrel, the US dollar is up 505 with the cash index at 75.638, and equity markets are under pressure with the DOW down 130 points.

Conflicting reasons for the price movement this morning; some things I have read indicate weather is forecasted a little warmer then it was last week; while other things I have read are for it a little cooler.  Bottom line is our markets really didn’t show any strength in the overnight session and with the weak outside markets we have to watch out for the markets maybe taking out a little of the weather premium that they have put into these markets over the past couple of weeks.

Basis remains on the firmer side for most of the grains; spring wheat basis feels heavy and with winter wheat harvest starting to hit our area we probably see local bids slowly go to new crop values.  Plus with new crop that much closer everyday it becomes less likely that basis strengthens and more likely that it weakness as buyers feel there is too much supply out there at least until we see the protein levels or create the appearance that demand is out pacing supply as presently the market has a mindset that we will have (at least during the harvest period) more supply then we do demand.

It looks like we are in store for some more wild markets based on the outside markets and the money flow they push into/take out of our markets and the weather patterns we are seeing with the current tight balance sheets that don’t leave a lot of room for small yields unless demand falls off.

As for marketing keep in mind that we do have most of our grains 3.00 or so a bushel higher then they where a year ago towards the end of June 2010; nothing says that they won’t be back to that level sometime in the future.  If outside markets where to show extreme weakness it could be a real possibility that our grains shows weakness; but so far demand is solid; but then again when spring wheat was over 20 a bushel in 2008 who would have thought it would trade back under 5.00 at some point?

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

grain marketing comments 7-15-11 drought to send us to new highs on corn or is now just the best time to sell?

Markets are called mixed today with row crops showing strength in the overnight session while wheat was lower in MPLS and CBOT while KC wheat was firmer as our markets appear to be consolidating waiting for the next catalyst to help determine price direction.

In the overnight session we seen the grains end up 5 cents for corn, up 5-6 on beans, KC wheat was up 2, MPLS wheat was down 3, and CBOT wheat was off 6 cents.  The overnight session was rather choppy in price action; CBOT wheat had about a 19-20 cent trading range and corn had about a dime range.  At 9:20 outside markets have the US dollar slightly firmer, equities have turned in the red after being stronger when that market opened as presently the DOW is down about 26 points, crude is up about 80 cents which is about 80 cents or so off of it’s highs seen in the last couple of hours.

The price action has become weather driven; present forecasts call for hot and dry during the pollination period for much of the corn belt as a ridge forms covering most of the corn belt; no sign of forecasts removing the ride yet.  Keep in mind that right now the rally is a fear driven rally; perhaps with the strong basis we see on the grains we can say that part of the bounce is fundamentally backed but the main thing in the market is adding premium due to weather.  That premium will continue to grow if the forecasts stay hot and dry; while it can quickly go away if forecasts change.  In my opinion as well as some others that I have seen the heat probably isn’t as big of an issue as it might be in many years because of the very adequate moisture most areas have going into the hot and dry area.  So unless it turns hot and try for a very long extended time we are probably just seeing a spot that when we look back is a selling opportunity.

The one good thing that we have going for us is that basis on all the grains is firm and on some of the grains and cash markets is at or near the best levels seen in many years if not all time.  So that says something that our fundamentals are helping to support our markets in some manner.  As long as the fundamentals continue to feel supportive rallies in the flat price are possible while our risk becomes and has been the outside market along with the fact that we simply have a very high percentage of the market participants who are bullish; eventually we will run out of buyers.

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

Option Trade ahead of USDA July Supply and Demand report

As we go into the USDA July crop report I got to thinking what type of trade helps out in both the bearish and bullish worlds.  So I looked for a trade that I thought had a potential to make money either direction; I found that it is hard to GTD a winner; but the one thing that can be done is having a risk management plan in place ahead of time.

A normal risk management plan when trading might be something like buy Dec corn at 6.35; risk to 6.20 (i.e. put a stop in at 6.20), with an objective of 7.00.  So trying to risk 15 cents to make 65 cents.  Plenty of possibilities but in trading and grain marketing risk management should be considered ahead of time to help keep away the impulsive bad fear and greed decisions that have a tendency to find us.

Here is what I came up with for an option strategy for Dec corn.

In looking at the above P L Graphs which one would you prefer to have?  I think I would take the one that isn't trying to guess where the price will be when these options expire; maybe doesn't have the upside that the others do but anytime one can turn in a free trade with a chance of a nice winner; how do you go wrong?

charts for grains on July 7th

here are some charts for the grain markets for July

Will next week's USDA report be the catalyst that moves the markets down even another leg?  Or will it be another shocker that fuels the bulls and lets our bull market keep running.  Perhaps next week's weather forecasts, along with the outside markets, and the coming USDA report set price direction for the next several months.  Do the seasonals and the rule of not holding unpriced corn past July hold true this year once again or do we see the markets end up repeating last years strength during the time of the year when it is least expected.

Bottom line is the markets appear to have plenty of risk's for both up or down price direction; don't be afraid to have some sort of plan to diversfiy that risk.

grain market comments 7-7-11 price in commodities just a chance to sell?

Markets are called mixed to better this a.m. behind firmer outside markets with a mixed overnight session that saw wheat in the red and the row crops positive.

In the overnight session corn was up 5-6 cents, beans where up 5-6 cents, KC wheat was down 9, MPLS wheat was off 4, and CBOT wheat was off 4 cents also.  At 9:05 outside markets have European wheat off about 2 %, equities are firmer with a better then expected jobless claims as the DOW is up 75 points, crude is 1.90 firmer, and the US dollar is softer with the Sept at 75.320 down .120. 

We do have a little grain related news out there today; first off we seen export business for wheat go the other direction last night as Egypt bought Russian wheat which has many talking about our wheat being over priced.  In other export news we did have a reported sale of corn to China; 540 k ton and then 300 k tons to unknown which is assumed to be China. 

Talk of the weather starting to get too dry in the eastern corn belt and a possible ridge building later in July is also leading the headlines.  We really should move into a weather market especially if the last USDA report is accurate in that we have a little more cushion on our balance sheets then we previously did.  Yield will end up driving prices by the look of things and the yield will be determined by weather; outside markets along with the money flow that they help create will be important; but it really comes down to weather.  Demand has remained good and margins are rather good for most of the users of corn.

The markets did open and have continued a mixed direction; at around 10 we have CBOT wheat up 2-3 cents, KC wheat off 12 cents, MPLS wheat off about a dime, while corn is 11-14 cents better, and beans are 15-20 cents firmer; while outside markets really haven’t changed.  It appears to be a little short covering on the CBOT wheat; while funds look to be selling the ownership off a little in the other wheat markets behind the thoughts that our wheat is becoming expensive.

As the day progress we did see the markets change up a little bit as the row crops lost a little steam while wheat managed to bounce a little off of their lows; outside markets continue to be supportive with the DOW now up 125 points as of about 1:30.

When the grains closed we saw KC wheat off 2-3 cents, MPLS wheat off 2-3 cents, CBOT wheat was up 7 ½ , beans where up 15-19, corn up 1-7 cents (with the July up a penny and Dec up 7), and the equities ended with the DOW up 93 points.

Overall a mixed day; rather interesting that we seen the Sept CBOT wheat contract showing strength over the deferred contracts; perhaps it was simply some short covering.  But any time real rallies have started it is usually the front month of CBOT leading the way. 

Technically we seen corn go back and fill it’s gap on the Dec contract; then close back below that old support new resistance level.  The price action seen the past couple of days since the report is rather similar to the price action we seen in 2008 when that big bull market turned into a big bear market.  The crop report in 2008 gave us a 64 cent break from the highs the day before the report to the lows the day after the report; we then followed that up with a 48 cent rally from the lows the day after the report and then the meltdown started back up as we slide all the way down to from a 7.99 high to a low of 2.90.  The price action on the Dec contract the past couple of days threw the last report is very similar; in that we broke 67 cents from our highs the day/night before the report to our lows the day after the report and then the past three days have bounced 46 cents from those lows. 

Who knows what the next coming week’s and months will be like; the potential for a 2008 repeat has to be considered when looking at risk management.  Outside market price action has hit and miss been similar to 08 and scary thing is the fact that the funds have more ownership now then they did back then.  Yield is yet to be determined and the one positive that have going for us now that we didn’t back then is a feeling of strong demand; which is being lead by old crop corn.  If we start to see basis pressure or a even a hint of coverage complete for end users one might really need to turn the marketing ideas much more aggressive if you are undersold at levels that despite the recent break are very profitable.

The birdseed market is one of those markets that is starting to display good coverage; sunflowers are still very tough to buy but the market feels like they are tougher to sell; the biggest wild card for that market will probably be when weather allows for a harvest; if the harvest is late there becomes the potential for little to no product creating a market where the sellers once again are in control.

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