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.
No comments:
Post a Comment