opening comments 2-24-12 grain markets

Markets are called mixed to weaker this a.m. behind a choppy to weaker overnight session.

In the overnight session CBOT wheat was off 5-6 cents, MPLS was down 4, KC was off 5, Corn was off 3 cents, and beans where unchanged to up a penny.  At 9:15 outside markets have the dollar under pressure down 565 at 78.257 on the cash index, equities are firmer with the DOW up 26 points, and crude is up 60 cents.

Yesterday and today the USDA is having their Outlook Forum; this has pressure us a little bit.  Many don’t put much into these numbers; but their isn’t much else to trade either.  The big news yesterday was wheat acreage up to 58 million a big increase from last year and from baseline projections.  This put their 2012-13 ending wheat stocks at 957 million bushels, versus 887 in their baseline projection and 845 currently. 

Corn carryout is pegged at 1.616 billion bushels; more then double the current market year.  One interesting fact is that the USDA used yields slightly above trend line yields in both corn and beans.

Beans had carryout projections for 12-13 at 205 which is a cut from the current 275.

Export sales where out and all grains came in above what is needed on a per week basis to meet current projections.  Overall most where in line with trade estimates and probably not a big market mover.  China buying some corn yesterday still could lead to some support.

Basis remains defensive up front but deferred slots are showing strength for wheat.  It shows that we don’t have anyone really looking for anything up front as we really lack export to domestic competition for wheat right now.  Corn basis is still hit and miss; many local ethanol plants have good coverage and margins are a struggle.

One positive our markets have is the fact that basis is above delivery values; one of the first times in a long time so this should lead to some support.  Bottom line is producers don’t have much interest moving until we see a rally.  Add to that fact that spring is coming shortly and we probably don’t see basis under much pressure until producers start moving some grain.

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

MWC Marketing Hour Round Table

I put up an interesting trade this week in our weekly mock trading session.

It was a hedge trade......well kind of

the trade was buying 2 May 6.00 Corn puts and sell 1 8.00 Dec wheat call

below is some of the thinking i had on in the agweb.com marketing old and new crop discussion thread


http://discussions.agweb.com/showthread.php?14346-Marketing-Old-Crop-and-New-Crop-2012&p=225650#post225650

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one strategy that we looked at in our marketing meetings this week was selling dec wheat calls to buy may and july corn puts

based on theory that dec-dec corn-wheat spread has corn well under valued versus wheat.....so selling a call in wheat instead of corn in hopes that if it turns into a HTA corn has gained some of the 1.20 or so discount that it presently is

i think the level we used was buying 2 6.00 may corn puts and selling 1 dec 8.00 wheat call for a small credit

the reason we used may instead of july or dec is protection cost of only 14-15 cents or so; plus if market breaks i don;t think new crop breaks nearlly as hard; i think breaks or rallies will be lead by old crop corn.........so if i want to protect a price break i want to protect the area that has the most risk......in this case old crop corn

it is much more risky and tricky to manage then using the same month and same commodity but it does have some reasoning behind it

any thoughts on the trade

selling 1 dec 8.00 to 8.50 cbot wheat call to buy 2 6.00 ish may corn puts......as protection against corn.....and a sale on top side for corn

Neutral Nick Update

Well it's been a couple week's since Neutral Nick jumped back on the scene; so it is about time for an update.

Below you will see some screen shots showing Nick's updates and projections; keep in mind this time nick is much more diversified into the months he has options sold and purchased.  Generally he has purchased a few nearby options and sold deferred options. He also has used his idea's on where spreads go to decide how to position himself.  His goal is no longer to stay 100,000 delta short.  His system this time is trying to make about a million dollars in each of the grains; without huge margin exposure; watching his gamma risk and not building such a huge and unrealistic mountain if you will.

Check out his info below.

The above graph on his delta position is really one thing that needs to be managed.  A couple of reasons.  A) so he doesn't swing too direction bias and stays "neutral" so to speak  B) So he can help control his margin cost.  What is his plan to do that; take a little off the top side via near term closer to the money options that have a big gamma advantage over other options he has sold or is selling.

opening grain comments

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

In the overnight session beans where up 11-12 cents, CBOT was up 9 cents, KC wheat was 3-4 higher, MPLS saw the front month up 3 with some of the deferred months down 4-8 cents, old crop corn was up 5, and new crop corn was down 1.  At 8:50 outside markets have European wheat up a little over 1 %, equities are slightly firmer with the DOW up 40 points, crude oil is up about 80 cents and the US dollar is near unchanged with the cash index at 79.283.

Yesterday it appeared as those we seen some index fund re-balancing as the deferred MPLS really took off and that helped spike up some of the KC markets where we actually seen a close higher then the electronic high of the day.  It appears in the overnight some of that got corrected as seen with front month MPLS stronger while deferred slots where weaker.

Basis has steady out on the MPLS spot floor as producer selling has really dried down.  Basis for winter wheat however feels very defensive and plugged up front.  We really need a little export to domestic competition for both of the wheat markets to have a long term rally and that seems far fetched given our world supplies that are showing record carryout’s.  Along those same lines we India’s wheat crop up to 88.3 MMT; a 60 year high.

We did get some more SRW business done with Egypt in the past day or so; a change from Russia/Black Seas and the 2^nd time in a week or so that it has happened. 

The birdseed market really feels like a buyers market as demand is very slow and it is hard to find bids that don’t run away from you.

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

Grain Market Opening Comments 2-15-11

Markets are called mixed to firmer this a.m. behind a firmer overnight session and mixed outside markets.

In the overnight session corn was unchanged to up a penny, KC wheat was up 3, MPLS wheat was up 2, CBOT wheat was up 3, and beans where leading us once again up about 8 cents on the old crop (new crop beans where 2 firmer).

At 9:00 outside markets are weaker then when the grain markets paused at 7:15 this a.m. with the equities slightly in the red with the DOW off 20 points, crude oil is up 75 cents a barrel which is about a dollar off of its highs, and the US dollar is back to nearly unchanged with the cash index at 79.560.

Not a lot of new news out there this a.m.; more cuts are being talked about for the South American bean crop and other logistical issues have slowed movement and brought business back to the US.  It was reported that a soy ship collided with a grain loader in a Brazil Port on Monday.

We did see 116,000 mt of beans go to China which helps support us again via showing business coming this way despite harvest happening in Brazil.

Basis is a little defensive on most of the grains; we simply don’t quiet have enough export to domestic competition.  Add to that the fact that most ethanol plants are running break even at best we don’t have a lot of reason to see massive competition between the two markets.

Wheat basis is even more being controlled by the domestic market as export’s just haven’t been happening for the hard wheat’s.

Don’t forget we have our annual meeting in Pierre tonight and this afternoon we have our MWC Marketing Hour Round Table meeting at 3:00; which is 30 mins earlier then normal.

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

Thanks

opening comments - weekly marketing meeting time change- reminder of annual meeting

Markets are called firmer this a.m. behind supportive outside markets and a firmer overnight session.

In the overnight session corn was up 4-5 cents, beans where 7-11 higher, mpls wheat was 6-8 higher, and CBOT wheat was up 9 or so.  At 9:00 outside markets are supportive with the US dollar weaker down 250 on the cash index at 78.86, equities are firmer with the DOW up about 60 points, and crude is up about 1.10 a barrel.

It was noted that we sold 55 TMT of US SRW off of the US East Coast to Egypt and some of the wires I read this a.m. mentioned that was the first time since June.

USDA will release baseline acre numbers this a.m.; with the market looking for about 94 million corn acres a USDA number above 95 or below 93 could swing our push our markets one direction or another.  These numbers are not survey or producer driven; that won’t come until the March 31^st report which is also another quarterly stocks report. 

Basis has been a little defensive the past couple of days; but with the drop in the board it could stabilize soon.  Bottom line is for wheat basis we really need some export to domestic competition; today’s lead of Egypt purchasing some might be a step in the right direction; but last weeks report that left us with an all time world record in wheat carryout should tell us that we might simply not see the export-domestic competition needed to have an explosion in wheat basis.  The good think about the world wheat carryout is that it doesn’t breakdown milling quality to feed quality.  Ideas are that there is much more feed quality then milling quality; if that is the case we have plenty of competition for corn.

A couple other announcements.  First don’t forget we have our Annual Meetings this week.  Tuesday in Philip and Wed in Pierre.  Along with our annual meeting on Wed we will be having our marketing meeting a little early on Wed; this week it will be from 3:00-5:00 instead of the normal 3:30 start time.

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

Thanks

Pre-USDA Crop Report comments - projections- close grain market thoughts comments

Markets closed weaker in the grains today despite outside markets that turned positive. 

Corn was down 2 in old crop, new crop corn was off 6 cents, old crop beans where down 1, new crop beans where up 2, KC wheat was off 7 cents, MPLS wheat was off 2-3 cents, CBOT wheat was off 6 cents, crude was up about 1.50 a barrel, metals higher, the dollar weaker with the cash index off 541 at 78.527, and equities ended higher with the DOW up 33 points.

Rather quiet and somewhat disappointing day for the grains; disappointing from the fact that despite the outside turning around the grains struggled.  There is a crop report out on Thursday and it appears the trade is once again setting up for a bullish crop report.  (Anyone remember the January crop report that saw us with an unchanged carryout in corn yet we traded limit down because the market was anticipating a cut to the carryout?)

Here are the pre-report estimates.

                                 U.S. ending stocks 2011/12

                                                          Wheat      Corn   Soybeans

Average trade estimate           0.867     0.791      0.273

Highest trade estimate             0.935     0.846      0.300

Lowest trade estimate              0.836     0.680      0.245

USDA January estimates          0.870     0.846      0.275

                             Global ending stocks 2011/12

                                                     Wheat    Corn     Soybeans

Average trade estimate      208.963  124.896    61.380

Highest trade estimate        210.000  128.140    63.770

Lowest trade estimate         205.000  120.000    58.000

USDA January estimates     210.020  128.140    63.430

The above estimates really should be pointing out some risk; or let down potential if we don’t see cuts like expected.  The cuts being expected on the other hand do have very sold logic behind them and I wouldn’t want to make a big bet that the report doesn’t see cuts.  After all ethanol usage is ahead of pace on a weekly basis and exports have picked up and both could allow some positive demand revisions. 

Now the methodology as to how the USDA goes about its carryout projections is up in the air and always will be kind of an unknown with some going as far as to say that the powers to be won’t allow too tight of a balance sheet because of higher food cost implications.  Along those same lines one has to ask themselves how much weight does the USDA put into future demand over present usage pace? 

As example presently I have seen reports the past couple of days where ethanol margins are in the red “near record negative for modern times”, domestic unleaded gas demand at a 10 year low, S Plains replacement cattle crude margins at a negative $125 a head, and prompt chicken moved to the red last week.

So if we take our two biggest users of corn; feed usage and ethanol usage and we see that many of them lose money if they buy today will economics allow them to keep their current pace.  How will the USDA look at their numbers; the present pace that says we should up our exports and ethanol usage or will the lack of margin that eventually will curve demand cause the USDA to leave their numbers unchanged or maybe if put in some cuts?

Another positive that has been talked about and reflected in the trade estimates is the world balance sheets from SA crops getting smaller; but it has also been reported for nearly a month now that weather has turned much more positive.  So in my opinion to assume that we get more exports my look good on paper and should happen but I don’t know that I am in the camp that our SA crops got smaller over the past 30 days; not based on what I have read over the past 30 days.  Now I would agree that the numbers we seen in the Jan report left room for them to get smaller as they were not as small as many thought; but I don’t know that weather really has caused a lot more damage since the last report.

The wheat numbers; any way you shake it we still have a lot of wheat in the world; and that is assuming we end up seeing a cut in the world stocks as expected.  The only thing the USDA has shown me over the years is that it doesn’t always stick out numbers that are expected.  Sometimes they are way off and the market gets it handed to them; sometimes the market and the USDA numbers come in line and then they look for a new reason to trade, and other times the opposite happens and we see numbers even more drastic the market thought would happen.  At the end of the day and ahead of each report we will always be left with these unknowns and for us in the grain industry this huge risk so we really have only one logical rational smart business decision choice.  Use good risk management in your marketing with a diversified approach while look to protect against extreme price (profit or lack thereof) swings.

If you need help with some risk management ahead of the report feel free to give us a call.  With a decent basis maybe one should simply look at making some cash sales and re-owning on paper if you are a bull.

Along those same lines don’t forget our weekly marketing meeting that we have in Onida every Wed; including tomorrow the day before our next report.

A couple of other things I am seeing:

ADM closed an ethanol plant in ND or laid plans to close it in the next couple of months.  (Permanently close it)

Basis for grains feels a little top heavy; some ethanol plants in Iowa dropped basis by 5-8 cents today and I have seen an uptick in producer selling.  Many comments about wanting cash flow right around March 1^st.   Wheat really lacks export demand and that is keeping a lid on basis for winter wheat and spring wheat.  Locally most ethanol plants seem to have good Feb-March coverage and basis for corn feels defensive overall; it doesn’t help that they can’t lock in a margin in deferred slots.  And overall it still feels like producers still have way too much ownership (hence risk) for a rally to really make much steam with end users losing money when they buy some of our grains.

The sunflower market has been in a free fall; but it is starting to feel like the panic selling is near and end.  Coverage also appears to be light so perhaps if business picks up and producers get back into the field  we have a chance to stabilize or bounce that market over the next couple of months.

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

Mock Trading Update

last week we did add a few trades during our Mock Trading session;

I adjusted my long 6.00 march puts via selling a 6.40 march corn put

I also adjusted my short July put via the sale of a 7.00 July corn call

Other new trades that where placed include Kevin with a long soybean contract versus 2 short wheat contracts

Scott went short some CBOT wheat at 674 with a stop of 6.85 and an objective of 6.50

Duane went long 2 March Wheat with a stop at 6.55 while going short 3 March corn

Please stop in Onida this Wed if you would like to join in on the fun; as it is great for learning.

Neutral Nick is back

Neutral Nick our mock trading character is back; this time with a little different rules and different game plan.  Not just focused on his delta position; nor does he no longer have an unlimited checkbook.  Plus he is planing on rolling things out this time; so no real end date.

Here are his trades to start off; many off of July futures; but some off of the Dec futures too.