Another Classic USDA Head Fake or are we now entering Bear Market Mode?

Did today's USDA Sept quarterly stocks report with small grains summary represent another head fake by the USDA (comic strip as some call them) or was it an indication of more bear markets to come in the days, weeks, and months ahead?

The one saving spot or bright spot has been spring wheat as it has managed to bounce back into positive territory.

Below is a link to Country Hedging info on the USDA report; be sure to check out there thoughts.

(Copied from email)"

Commodity Comments

By Tim Emslie

The USDA surprised the market with much higher corn and wheat stocks in today’s Grain Stocks report, implying more feed rationing than expected.  Lower spring wheat production on the Small Grains Summary report offset some of the bearishness 

·         Video comments

·         Grain Stocks and Small Grains Summary slides"

It looks like might have spoke too soon in regards to the Spring wheat strength as it is now 20 cents off of it's highs.  I suppose that is why they said trade wheat sleep on the street's when I started this job about 10 years ago.

As for the market outlook i think we need to find some reason how we see herd sizes for livestock as big as they are while we have implied feed usage for corn and wheat as low as it has been for years.  Is it more DDG's or what is scoop there?  Perhaps the answers to the feed usage will provide direction to what fundamentally our markets are actually telling us?

Bottom line watch for some rather volatile markets as we move forward; keep in mind 2008 and the crash we seen then; but also keep in mind last Sept report and the following Oct report where the USDA found bushels or used the new crop theory.  Both seem possible while neither really seem probable given the price action over the past several months.

Rolling a Call Option - MWC Marketing Hour Strategy of Week

Here is copy of power point that we will have during today's MWC Marketing Hour Round Table

Grain Market Opening Comments 9-21-2011 ....what will the Fed do today?

Markets are called mixed today behind mixed outside markets and a mixed overnight session.

In the overnight session KC wheat was 3 lower, MPLS was off a penny, CBOT wheat was up ½ on the Dec while the deferred month’s where weaker, beans where up 2, and Corn was up 3 cents.  At 9:15 outside markets are choppy as they perhaps wait for a fed announcement at 1:15 right when the grain markets close, presently the DOW is up 10 points as equities are close to home, crude is off about 50 cents a barrel, the US dollar is firmer by a couple hundred with the cash index at 77.253, and European wheat is near unchanged.

Another lack of news day as our markets continue to hang around waiting for the next price catalyst to help push the next big price move.  This afternoon the Fed will have a statement and that could effect the outside markets as well as our markets. 

As for our markets we have been seeing early yield reports showing better then expected yields on the early harvest reports that we have seen; perhaps a little early but so far that is the trend we are hearing.

Basis remains a little on the defensive but with the recent break in prices there are times when we have started to see a little buying interest.  Seems like the market is almost starting to act like it is suppose to in that basis firms when board drops and when board rallies basis becomes weaker just like it is suppose to in marketing.

Watch for choppy markets that really are waiting for some big news.  Next week’s stock’s report could be a key report in determining price action as we move forward over the next several months; keep in mind that the quarterly stocks report has been a limit day report many times over the past couple of years. 

As for marketing grain I think one need’s to keep in mind risk diversification; as depending on how certain factors pan out there could be rather big moves in either upward or downward prices as we move forward.  Bottom line is I really don’t want to be left undersold if markets crash nor do I really want to be oversold if we see major strength to the upside.  Things are just too volatile too get over extended trying to out guess these markets; so focus should probably be good risk management that involves risk diversification over time while focusing on making decisions or in grain marketing sales that make sense.

If you need help with a marketing plan please feel free to give one of us in the grain department a call.

This afternoon we will be having our MWC Marketing Hour Roundtable; hope to see some of you there as we go over various charts and possible trading strategies as well as do some mock trading.

Thanks

Buy the break or sell the Rally?

Are we in markets that we should be buying the breaks or should we be selling the rallies?  How much upside potential is out there if a perfect storm develops with all of the variables that are out there?  What about downside risk; is it still possible to see a 2008 like breakdown?  

I don't know for sure; nor does anyone; so if one is looking to marketing grain and have a plan the best choice is still probably risk management and in volatile markets that means risk diversification thus perhaps making sales in smaller increments then normal.

Here are a couple charts to help one decide if it is sell the rally time or buy the break time.

Mock Trading from Today's MWC Marketing Hour Round Table

This afternoon we had another MWC Marketing Hour Round Table. 

First off during the past week Dan closed two trades one for about a 40 cent winner and another for a 15 cent loser.

Kevin also exited a trade with a 10 cent winner; while Jordan and myself exited no trades last week.

I posted Dan's trades/adjustments yesterday; below are the trades the rest of us did.

Adjustments :

Jordan - Sold 2 14 nov bean calls against his long 14.00 bean call and short 16.00 bean put

Against his bean corn option spread he sold 2 7.00 corn puts and bought 2 of the 7.50 corn calls along with selling 1 14.60 nov call;

Kevin - didn't adjust any trades as he left is ratio spread trade on while took profits on another trade

Jeremey - on my ratio protection spread with Dec 12 corn call sold while owning the 7-6.50 Nov bear put spread; i sold 1 of the 7.20 Nov puts and 3 of the 7.00 Nov puts

Against my July 2012 corn ratio spread I sold 2 6.00 puts and bought 1 of the 6.50 puts July puts

That was all of the adjustments made this week; but below are the trades we made

Trades of the Week :

Kevin - Sold Dec 8.00 call while purchasing the 8.50 dec call and the 7.50 Dec put; basically sold a credit spread to purchase a put

Kevin also entered a spread trade as he sold the KC March wheat 2 times against a long March corn; he had a risk of 1000 on the close with an objective

Jordan - Went short a 8.00 KC Dec put and short a 9.00 Dec Call

Jeremey Sold 1 of the Dec 7.00 corn puts while purchasing 5 of the Oct 7.00 Puts

MWC Marketing Hour Round Table - Trades and Trace Concepts

We will be having our MWC Marketing Hour shortly and Dan the man won't be able to make it; but Dan did email over his trades for the week along with updates on his open positions.

Below is the email with his trades; look for an update on the other trades later.

"My Z 11 corn trade closed at 7.34 for a loss of .15

 

KWH 12 trade hit objective of 8.30 for a gain of .4075

 

Bean Butterfly Trade:  Jordan said the monarch hasn't made its migration yet..............Right on the money with nothing in the wallet...............only up $ 400...........Need to gain on my time value............. Let it ride!

 

And the trade of the week!    Drum roll please!!!

 

Long CZ11 @ 7.2425    Objective:  7.3625 Closing    Risk: 4 cents or 7.2025

 

Dan Powell"

 

 

please check back later as we will update all of the trades sometime after we have our marketing session.

USDA Crop Report - beans under pressure; corn strong wheat weaker but closes decently

opening comments

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

In the overnight session corn was off about 3 cents, beans where off about 8 cents, KC wheat was down 7, MPLS wheat was 4 lower, and CBOT wheat was down 4.  As of 9:20 outside markets have European wheat near unchanged, equities are slightly softer with the DOW off 30 points, crude is up about 20 cents a barrel, and the US dollar is bouncing with the cash index at 75.819 up 353.

Not tons of new news out there this morning.  Outside markets and consolidation into next week’s USDA report are leading the headlines.  Basis is steady on most of the commodities but the trend over the past month or so has been weaker for corn, beans, and spring wheat.  Spreads are showing signs of bear markets lately as the carries widen out or inverses become less.

Here is a run down of idea’s for report.

DJ SURVEY: US Grain, Soybean Carryout

2011-12

                                         Aug

               Average       Range       USDA

Corn (19)      0.636      0.497-0.757    0.714

Soybeans (19)  0.152      0.110-0.188    0.155

Wheat (17)     0.667      0.628-0.705    0.671

DJ SURVEY: USDA September Corn, Soybean Production Report

                                       August   2010

              Average       Range      USDA     Production

Corn (24)      12.505   11.913-12.913  12.914   12.447

Soybeans (24)   3.025    2.924-3.085    3.056    3.329

Yield                                  August   2010

              Average       Range      USDA     Yield

Corn (24)       148.8    145.0-153.0   153.0    152.8

Soybeans (24)    41.0     40.0-41.8     41.4     43.5

Yesterday we did have one of our Marketing Hour Round Table meetings.

Below are notes and attached are some of the charts we went over.

You can find the post on this at http://grainmarketingplans.blogspot.com/2011/09/mock-trades-for-mwc-marketing-hour.html

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

Thanks

Mock Trades for MWC Marketing Hour Round Table

Today we had another session of MWC Marketing Hour Round Table; during these meetings we go over various strategies related to grain markets/marketing, we cover the theories behind various strategies, the technical side of our grain markets as well as the charts that go with our markets, and we have some mock trading in which we place trades every week and keep track of those trade results.

Below are some of the charts we covered in this afternoon's session

After we went threw the charts we talked about rolling a covered call.

We used the example of rolling a Dec 7.00 Call sold back in March when the market was trading in the low to mid 6.00 range for around 50 cents.  We figured that today we could buy a Dec 7.00 call for about 75 cents thus locking in a 25 cent loss; but we could now sell our corn for about 7.50 on the board (7.25 net); which was about the best case we could do when we sold the call for the 50 cents to start with.

While what if we don't want to have corn sold anymore at 7.00; after all the price is going up?  Isn't it?  Well what happens if we sell a July 8.00 Call for about 80 cents.  Answer we collect a nickel or so via rolling the short option out and we now have a top limited to 8.00 on the July Futures

Here is the Math on the trades

March Price when placed 6.30

Sold 7.00 call for 50 cents; purchased back for 75 cents; loss of 25 cents

Sold 8.00 July call for about 80 cents; now net we have collected 55 cents and raise our ceiling to 1.70 higher then the board when we opened this trade to start with.

.50 collected minus .75 bought back plus .80 collected = 80 cents that we can add to our price when we end up selling the product; in exchange for that 8.00 on the July futures appears to be the max we can get unless we use another strategy similar to this.

Last but not least this week we did some mock trades

Here are the open mock trades we have after today's session.

Jordan has a long 14.00 bean call against a 16.00 bean put on one trade; presently up rather good on this trade.

Today he purchased a 7.50 corn put (2 of them) and purchased a 15.00 bean call.

He then added a spread trade via buying oats and selling corn.

Dan had a couple future trades as he went long Dec corn at with a nickel rick and an objective of 15 cents profit.  His other trade was short KC March with a 15 cent risk and an objective of about 40 cents profit.

Dan still owns the 13-13.80-14.60 Nov bean butterfly in that he is long a 13 call short 2 of the 13.80's and long 1 of the 14.60 calls.

Kevin Went long Nov Beans and short 2 contracts of Dec corn. Kevin also had a ratio spread trade open and during the last week it hit his follow up point.

He is long a 7.00 call versus 2 short 7.60 Dec call for about an 8 cent credit.  He then rolled the 2 7.60 calls out to 4 of the 8.20 Dec Calls and also managed to do this for a credit.

Myself I added a couple of option trades via buying a 7.00 July 2012 corn call against 3 short 8.50 corn calls collecting a net of about $2100 or so.  Thus having upside room and downside potential to make some money; but VOL isn't exactly my friend; so my ratio spread will be tough to manage.

The other trade I placed was hedge type of trade via shorting 1 of the Dec 2012 6.50 corn calls and buying 6 of the 7-6.50 Nov 2011 corn bear put spreads.  A bear market bet that will return good if we have a hard breakdown; while if I look at it in a producers eyes it could be similar to a ending up in a HTA contract in 12 while getting nearby price protection.

I do have one open trade out there where I have the 7.20 Dec calls and puts purchased against the sale of 3 each of the 6.50 puts and 8.00 calls.  

Grain Market Comments Sept 7th

Markets are called better this morning behind a firmer overnight session and outside markets that are supportive.

In the overnight session corn was up 6 cents, beans where 8-9 higher, MPLS wheat was up about a dime, KC wheat was up 7 cents, and CBOT wheat was up about 7 cents.  As of 9:10 outside markets have European wheat up about 1 %, crude oil is up a little over 2.00 a barrel, the US dollar is weaker with the Cash index off 333 at 75.618, and the equities are showing a little bounce this a.m. with the DOW up about 171.

A rather quiet day for news this a.m. the market looks like it wants to consolidate into next week’s USDA updated S & D report.  Ideas have started to move to thinking that supply is smaller as yields appear to be down and coming down with most private estimates getting lower every time someone announces their estimate.  But estimates for carryout are showing that thoughts have also move to demand slipping for most of the grains.  Bottom line is there appears to be some fundamental fireworks in the month or so.

I have seen that some of the early harvest reports for corn are coming in a little better then expected; but I have also seen ranges that are more then huge.  One of the articles I read today referenced a yield ranging from 60 bushels to 230 bushels all from just one producer.

Basis for the row crops and probably grains in general is weaker; perhaps winter wheat basis is steady but the rest of the commodities we handle one probably considers the basis trend weaker and idea’s are quickly becoming that basis will continue the weakening trend until it hits some sort of harvest low.

The weaker basis is a little more concerning then normal to me; because if our fundamentals are so tight for a crop like old crop corn.  How does basis do what it has done?  Also I would say that it is tough to buy grain right now; most producers are generically bullish and not many are in have to sell situations or to summarize supply isn’t exactly running the elevators over with producers looking to sell but rather the opposite.  But despite the ability for producers not to have to move much we are seeing basis weaker not stronger; because demand is simply that soft. 

Not exactly super bullish indicators.

On the other side of things there still remains plenty upside potential in our markets if things go correct and if we get a perfect storm who’s to say that the upside potential isn’t huge as whether our economy’s are growing or struggling the world population doesn’t appear to be anything other then getting bigger.

Don’t forget that we do have our Marketing Hour Round Table today at 3:30 in Onida; come and join us.