Market Comments - 7-23-2012 - Key Reversals on the Charts? Top in for Grains?

The grain markets closed weaker today behind a very volatile trading session; lead weaker by beans, some wetter forecasts, and weak outside markets.

Corn closed down 10 cents, beans where off 64 cents after trading limit down at one point during the session, KC wheat was off about 27 cents, MPLS off 26, and CBOT wheat was down 31.  Outside markets had crude down over 3.50 a barrel, gold off 7.00 an ounce, the equity markets weaker with the DOW down 101 points, and the US dollar made new calendar year highs today.

So was today just a pause before going higher on the grains? Or was today it?

I don’t know and as always all I can really preach is good risk management and doing things that make one comfortable whether our markets go up, go down, or chop around sideways. 

The market has left us some different clues as to what the future may hold; but we are not going to be able to outguess with all of the factors effecting prices on a consistent basis; nor do we recommend anyone trying to out guess the market; after all that is why it is called the market and is a price discovery system; a very volatile one at times; but nonetheless a price discovery system.

Some of the clues the market left today are both bullish and bearish.  The bullish side of things; is the fact that each day our crop has got smaller and for many areas it is too late for some of the crops.  Yield estimates for corn are falling each day by virtually everyone in nearly every area.  So just because supply is so unknown and we have previously built up such strong demand prices potentially have no limit as to where they could go.

So there is the most bullish thing we have; the unknown factor or fear of not enough supply factor.  We do have to have our prices get to the spot where end users are not using the same amount they would have if our prices where say 5.00 on Dec corn; as we simply don’t have enough product to meet the “normal” demand. 

Until we really can put a solid figure on supply it is hard to determine if we have curved enough demand and until that happens many in the industry feel the only place to go is up.  Goldman Stachs had a corn price target of 9.00 today and many have been talking about 10.00 or higher corn. 

These projections hitting the headlines are also one of the reasons to be a little cautious; and lead to some of the bearish clues we have seen.  Typically when Wall Street starts talking about prices going higher the top is soon; after all take 2008 and crude oil when it was near 150; I think nearly all the forecasts where for 200 crude; not 30ish like it happened to be just several months later.  Everyone get’s bullish at the top as that is when all of the bullish information is known; but what also happens is there comes a spot when you need to feed the bull so to speak or when everyone that has bought or sold a market already has.

A couple technical red flags if you will did happen today; Dec corn traded to a new high of 8.00 and closed lower leaving an outside bearish day along with key reversal as it touched the 8.00 level that capped the market last year as well as in 2008.  Some of the wheat markets and their charts also left key reversals and outside bearish days.  The key reversal is when we make new highs for the move and close lower and the outside bearish day is when we take out the previous sessions high’s and low’s while closing lower.  Both strong technical signals that we perhaps reversed. 

Another bearish warning sign has to be demand; most corn bids rolled to the Dec at no spread.  I still have ethanol plants trying to sell me back corn as they have slowed their grind.  The profit portion for corn end users isn’t exactly great as no one can make much if anything at these levels.   Does it mean we can’t go higher; no but I don’t see a picture in my mind that doesn’t involve ethanol plants going either belly up or at the very least shutting down for an extended period of time.  Which is scary because we could very easily curve demand more then we have cut supply.  I doubt it; but very possible and historically it wouldn’t be a first.

The US dollar making high’s for the year after gapping higher on Sunday night is also a little caution flag for the grains.

Bottom line is continue to get yourself in a comfortable situation whether or markets go up, go down, or chop around.

If you need some help with your risk management please feel free to give us a call.

Thanks

Grain Market Comments 6-7-2012

Markets closed firmer across the board today.

Old crop corn ended up 8 cents firmer, new crop corn was 17 cents higher, beans where 42 cents better on both old and new crop, KC wheat was 13-14 higher at closing time; but the last trade was trade was only 6-7 higher, MPLS wheat was up 19-23 cents, CBOT wheat was up 18, the US dollar was about unchanged leaving a near Doji on the charts with the cash index at 82.260, gold got hammered down $46 an ounce, and crude was also near unchanged at 84.82.

Overall a good day for the grains; but I didn’t care for the outside markets and how they closed.  The US dollar left a near Doji and equities where well off of their highs with the Nasdaq down nearly a ½ of a percent.  It made me ask the question if the price action on the outside markets the past couple of days was just a correction before they resume their “risk off” type of attitude.  I posted a couple US dollar charts at http://grainmarketingplans.blogspot.com/2012/06/us-dollar-cash-index-chart-6-7-2012.html

Basis remains on the firm side for most of the grains.  I would note that we are seeing product needing to move locally and that could cause some basis weakness before wheat harvest as producers and elevators look to make room for wheat harvest.

The outside market strength helped our markets today but so did the weather.  There is some moisture forecasted for early next week and if it happens we could see a little pull back; but right now everyone is talking about the hit and miss dry weather in many areas with some talking decreased production.

Next week we will have a USDA report that will have updated Supply and Demand numbers for both the old crop grain balance sheets as well as the new crop balance sheets.  Most of the estimates I am seeing are for a bullish report with decreased stocks.  This could open some risk if the USDA doesn’t agree with the estimates and prints bullish numbers.  After all crop conditions for corn and early emergence are not exactly that of a decreasing yield; but that of an increasing yield; yet I don’t see many estimates looking for corn, wheat, or bean carryout increases from last month.

The average trade estimates that I have seen for corn is down 30 million bushels on old crop stocks with new crop carryout estimated nearly 90 million less than the last USDA report.  Beans and wheat have small decreases estimated but nothing major.

Sunflower prices have firmed up the past couple of days with the firm bean market.  Feels like buyers are getting close to scrambling for coverage as producers become less willing sellers. 

It is now past 5:00 p.m. and the markets have opened back up; we presently have July KC wheat off about 7 cents, CBOT wheat off about 7 cents, MPLS off about a penny, beans down about a nickel, and corn off 2-3 cents while crude is off over a dollar a barrel.

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

Jeremey Frost

Grain Merchandiser

Midwest Cooperatives

800-658-5535

800-658-3670

605-295-3100 (cell)

605-258-2166 (fax)

jeremey.frost@chsinc.com

www.midwestcooperatives.com

http://grainmarketingplans.blogspot.com/

Grain Market Comments 5-22-2012 corn gets hit hard

The grain markets took a step back today behind some rumors that China was cancelling some old crop purchases of corn and soybeans.  Nothing really confirmed but plenty of China rumors.  Perhaps just another trick to buy at cheaper prices or maybe this is for real.  Some of the rumors where that they cancelled, others that they replaced with South American business, and others that they rolled into new crop.

The wheat market was the only market that held in there and only via closing above yesterday’s lows; wheat was still like the other grain markets priced lower and rather sharply lower.

Not sure if it is fear time; but we need to realize that there is plenty of downside risk to the grain prices.  So practice good risk management and have a solid grain marketing plan in place for you and your operation.

At the end of the day old crop corn lead the pressure down with the July off 32 cents, Sept was 20 lower, and the Dec corn contract was off 16 cents.  These are the last trades; not the settlements as corn’s last trades where a couple cents better then the settlement or actual close, beans a penny weaker, and wheat’s last trade price was very close to its settlement or closing price.

Beans were off 32 cents on old crop, new crop beans were down 25 cents, KC wheat was off by about 14 cents, MPLS off by about 15 cents, and CBOT wheat was off 18 cents.  Outside markets had a very strong US dollar which didn’t help our markets out at all, crude down over a dollar a barrel, and equities ended the day about unchanged.

The latest weather updates appear to have a little relief in some areas and most felt this added to the pressure; but really it seemed to be the corn market leading us down and we have seen basis feel a little weaker in some spots for corn.  I actually thought wheat held in there and consolidated like it is suppose to do following a nice run up; no red flags technically to me that it is over.  While I seen an article on beans today that had the headlines of Sayonara Soybeans!  The label of the technical article itself is rather scary; bottom line is beans have done plenty of technical damage to the charts. 

Basis for wheat is a little weaker on the run up but not really considering the huge rally the board did have.  I remember the 2010 rally and it seemed like basis was weaker penny for penny on what the board did; the recent rally has helped producers catch up on sales without damaging basis much.  Anytime basis holds in there when the board rallies it is a good sign.

The birdseed market is a little defensive on sunflowers but the millet market is now on fire. 

We recently sold a big chunk of Milo the ethanol market as well; so that commodity feels a little better or at least it’s supply and demand dynamics has changed.   

I think the wheat price action the next couple of days will be very important as well the weather and what it helps the charts do or not do.  If wheat can hold these levels with maybe some digestion on the charts or consolidating it should give us a chance to have another leg up.  The funds still remain short and if our crops have got smaller in the US and the World since the last Supply and Demand report that should only help out our prices.  Keep in mind that even though it seems like we have plenty of wheat our US and World carryout numbers are down to the lowest level since 2008.  That to me is friendly and the funds love weather stories so if we don’t get the moisture that is being called for in Russia and it remains dry down south I think wheat has the potential for a nice little bounce. 

From a pure risk management perspective keep in mind that every time wheat has bounced in the last year or so it has failed and ended up lower then where it started it’s rally at; so there is nothing wrong with pricing some grain on this rally because that is still a possible outcome and if you look at the US dollar chart you would be very nervous owning the grains right now as it’s chart looks rather friendly.

We have talked about wheat being too cheap versus other commodities for a long time now and that is another possibility that the market could do; get spreads back in line. 

As for corn outlook new crop really comes down to weather as I can paint pictures or possible price outcomes where on good yields along with poor outside markets that corn gets really cheap perhaps starting with a 3 and on the other hand bad weather or say 1988 type weather could propel corn to new all time highs.  Bottom line is that our markets have more risk and volatility then ever so the only logical thing to do is risk diversify and make sales that make sense when given the opportunity.  Today we still have the chance to make sales or get protection on to lock in profitable levels.  No guarantee that will be the same a few days from now more less a few months from now.  If you need help with your marketing or want to put in some open orders/offers please give us a call.

One thing I didn’t like today was the fact that I haven’t heard or seen one comment for corn that basis is better with the softer board.  The board going down and basis weaker isn’t a great thing to see.  Technically corn to me appears to be in a sideways market. 

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

Thanks

Super Strong Grain Markets as the Grain Markets Open very strong Easter Sunday

The Grain Markets opened very strong Easter Sunday; wheat and corn both up 10-20 cents.  Will they hold come Monday?

They have slowed down after trading the past couple hours but are still very strong, MPLS wheat is leading the way so far.  Old crop corn has gained about 7 cents on the new crop contract which is back near resistance.

The thing that really is starting to stick out to me is the fact that we seem to have too many jumping on the bull bandwagon for commodities in general.  Same on the bear bandwagon with the US Dollar; I can't remember the last time I seen or heard something from any source that was friendly the US Dollar.

It is and has always been impossible to determine tops in the markets until well after the fact; but it just feels like we are simply one or two re-test failures away for many of the grains.

Bottom line looks to me like some volatile days ahead......perhaps these markets simply go straight up; but then again maybe some headfakes happen along the way and just perhaps the ending destination (price) isn't exactly where everyone thinks it will be.

After all don't things always look the best and brightest at the top and the darkest at the botttom?