Wheat Charts........Bull or Bear

Below are a couple of wheat charts.

Maybe they can help you determine if the price break for wheat this past week is just a correction in a major bull market.  Or if the rally wheat seen last week was just the correction in a major bear market.

Please comment with any thoughts!

Market Comments - 5-23-12 - What used to be open grain market calls!

It is about 8:45 and presently we have the grains weaker along with outside markets weaker.

Presently we have corn off about 4 cents, KC wheat off about 15 cents, MPLS down 13 cents, CBOT wheat off 19, and beans off 25 cents.  Outside markets have the cash dollar index about unchanged, EU wheat lower, equities a lower with the DOW off 80 points, and crude is down 60 cents.

One comment I had from a buyer today was is wheat really down 15 cents?  With the real lack of volume do the present prices mean much?  Yesterday it was like that as we seen big movements at 9:30 for the grains and seen volume really pick up and then really die off at 1:15.  So I guess it will be a learning lesson for many on all sides in the industry.

Technically things have turned a little ugly; we commented yesterday how the bean chart really looked ugly and how corn was just back towards the bottom end of it’s nearly 8 month range.  Wheat now weaker looks like we maybe put in a top on Sunday night; I guess it still goes back to how we close out in the next couple of days.  Was the correction the dollar rally wheat seen in it’s prices or is the 40-50 cents we are off of the highs from Sunday night the correction in the start of a bull market.

Forecasts are calling for some moisture in Russia and that has helped push the markets weaker.  But I also seen a comment this a.m. that Ukraine rain won’t help wheat, National Meteorology Center Says today. "As much as 30 % of the grain harvest in E and S Ukraine may be lost". 

We have seen Russian wheat production lowered by a couple different analysts the past few days.  So Hopefully the price action we are seeing in wheat is that just of a correction as the dollar rally in less then a week might have been a little much.

The other side of that is there are analysts out there that thing and feel wheat is just a feed grain and that it can’t hold it’s recent rally versus corn. 

When markets have so many factors and variables like our markets do; plus the fact that the funds are just huge players and make money flow be the biggest fundamental at times out weighing actual supply and or demand when it comes to marketing the only thing I can preach is to practice good risk management.  As I can give you possible outcomes where we are much higher; but I can also give one possible outcomes where the grains are much lower.  So finding a way to be comfortable whether the markets are falling out of bed or exploding higher really is key in having a grain risk management plan. 

Please don’t forget we do offer a Country Hedging Branch that can help you utilize futures and options when putting together your grain marketing plan.

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

July CBOT Wheat Chart and July CBOT Corn Chart

Here are couple of charts with the futures prices for corn and CBOT wheat.

Shows the next couple of days could be important for wheat.  The corn chart shows us that despite today's nearly limit down move we have simply went back to the bottom end of the range we have had for several months.  It could get really scary if we don't hold the support.

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

market comments first day trading 21 hours

Below are market comments.

First off today was the first day of trading from 5:00 at night to 2:00 the next afternoon.  So we won’t be see early calls any more we will be seeing early trade action reports.  The other big thing is how the markets close and settle.  The pit’s still close at 1:15 and the settle prices are still based on trading price at or around 1:15; even though the markets trade until 2:00.  Today’s price action shows how that will effect us.

Our bids that we sent out earlier are based on the settlement prices at 1:15; but if you call us up to sell grain this afternoon our prices won’t be what is on the bid sheet; at least not until 5:00 p.m. at which time the markets re-open.  Our bids when the markets closed will take into effect the last trades at 2:00; many other elevators and maybe someday in the near future grain pricing or the marketing of grain will probably only be allowed during market hours. 

Bottom line is that the CLOSE on grain future prices are now DIFFERENT then the LAST price.  Here are the examples today.  KC July wheat “settled” or “closed” or closed at 7.15; but the last trade at 2:00 was 7.09 ¼ .  So if you call us up this afternoon our bid is different then what our closing bid is at because we are following the last trade. 

Someone asked me if that is a direction of what’s going to happen tonight?  Probably but there has always been breaks for the grain prices and usually they open about where they last traded at; but not always.

If you have questions on the new market hours please feel free to give us a call.  Keep in mind that volume and bid ask spreads typically get wider once the pit closes and I would say that happened today also.  So prices between 1:15 and 2:00 might be thin at time; perhaps like MPLS most of the time?

As for the markets today we had a mixed bag; started rather firm last night but cooled off as the session went on.

The last trades for the grains where down 6 on July corn, Dec corn last trade was up 2 cents, MPLS wheat had a last trade of up 4 cents, KC wheat had a last trade of up 4 cents, CBOT last trade of 4 higher, equities where firmer with the DOW up 1.35 points, the Dollar was softer by 300 with the cash index at 80.963, and crude up a little over a dollar.

Now keep in mind the above and realize that you might have heard comments like KC wheat closed up 10 cents which it did.

Bottom line wonderful or not so wonderful changes.  At the end of the day this won’t be all bad; it just seems a little challenging as we stand right this second.

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

Ag West - CORE Plan Weekly Alert

Below is forward I received from Steven Knuth owner of AgWest Commodities; he said i could post this on the blog.  I guess he seen some posting that i do once in a while at http://www.talk.newagtalk.com

He welcomed his information to be put out to help inform producers; make sure to check them out at www.goagwest.com

Below is the forward.

Steven Knuth

AgWest Commodities

Past performance is not indicative of future results.  There is substantial risk involved in trading futures and options which may not be suitable for everyone.  However, the risk involved with purchasing options is limited to the premium paid plus transaction costs.

*Updated: May 18^th, 2012*

Closing Prices:

DEC. 2012 CORN $5.37

NOV. 2012 BEANS $12.88

JULY 2012 KC WHEAT $7.05

Weekly Change (2012 New Crop) Corn was up 32 cents, Beans 33 cents lower and Wheat finished the week up 95 cents.

Wheat – The Unlikely Leader

Both the U.S. and World wheat inventories are huge but that didn’t stop the wheat market from becoming the upside leader for the week.  Hot and dry conditions are prompting concern of yields being trimmed in winter wheat country and earlier this week, Strategies Grain lowered its European Union wheat production estimate for 2012/13 by 4.2 mmt.  Traditional funds have been camped on a very large short position in wheat for a very long time and recent weather developments have been enough of a catalyst to bank some profits.

Wheat fundamentals are more negative than for either the corn or beans, which makes wheat an unlikely leader to higher values.  That said, this has similarities to the beginning of the 2010 bull market when weather prompted massive fund short-covering in the wheat.  Short-covering alone will not create a raging bull but it has so far been enough to technically turn the trend higher after a prolonged, year-long downtrend.  HAVE YOUR NEXT SALES TARGET PLACED AND ROLL ORDERS CONFIRMED WITH YOUR BROKER.

July KC Wheat

Corn Follows

For the meantime, the wheat and corn markets are connected at the hip as some substitution of wheat in feed rations is being assumed to ease pressure on the short supply of old crop corn.  If corn doesn’t follow along, wheat will quickly price itself out of the market as a feed substitute.  December corn posted a low of $4.99 last Friday but this week’s rally has it poised to challenge overhead resistance at the multi-month downtrend line.   A continued wheat rally could provide the necessary momentum for a much needed trend reversal in corn.  Cheer those wheat traders on! 

December Corn

Do You Have ALL Your Beans Hedged?

Beans are in quite the opposite position of wheat.  The fundamentals are bullish but the technical view has turned decidedly bearish and the funds are VERY LONG of beans.  In the face of an explosive wheat market and a decent rally in corn this week, the bean market struggled to hold steady.  Current prices provide strong profitability in 2012 . . . if you haven’t done so already, GET YOUR BEANS HEDGED!

November Beans

Volatility Is Your Friend

Growing season volatility is increasing and that is a very good thing.  When you’re marketing under a structured plan that can take advantage of extended moves in either direction, the more volatility the better!   Higher prices are always the most desirable but no matter which direction markets are moving, you have the luxury under this plan to hope the move has legs.  The key to the success of your plan is to be prepared for whatever the market does next.   Do yourself and your broker a huge favor by having ALL appropriate roll orders in at all times. 

REMINDER:  At our winter Outlook meeting we showed a hypothetical range for 2012 corn prices (futures).   The high was $8.50 and the low was at $3.00.   Here we are in the middle of May and EITHER end of that range is easily argued and certainly possible.  How does one market when there is a potential $5.00 range in price?  You cover your downside risk and hope for higher values to sell into . . . you do it exactly the way you are and most importantly, “just keep doing the next right things”!       

“CORE HEDGE PLAN” DIRECTIVES

---

*2012 Corn*

RECENT ACTIONS:   None

**NEW DIRECTIVES:   Sell next 10% @ $5.58 Dec. 2012 futures.

                                           If not already covered with Puts on unsold production, talk with your broker immediately!

                                           

CURRENT OPTION POSITION:  Dec 2012 550 Puts on 65% of anticipated production.                                          

2012 CASH SALES TO DATE:  Total of 35% forward contracted: (04/20/11 Sold 10% @ $6.00 Dec. 2012 futures) (06/08/11 Sold 10% @ $6.24 Dec. 2012 futures) (07/13/11 Sold 10% @ $6.42 Dec. 2012 futures) (10/27/11 Sold 5% @ $6.13 Dec. 2012 futures)

---

*2012 Beans*

RECENT ACTIONS:  None

**NEW DIRECTIVES:  Sell next 10% @ $14.20 Nov. 2012 futures

                                         If not already covered with Puts on unsold production, talk with your broker immediately!  

              

CURRENT OPTION POSITION:  Nov 2012 1240 Puts on 70% of anticipated production.                                                    

2012 CASH SALES TO DATE:  Total of 30% forward contracted: (09/12/11 Sold 10% @ $14.00 Nov. 2012 futures) (02/03/12 Sold 10% @ $12.36 Nov. 2012 futures)  (3/30/2012 Sold 10% @ $13.69 Nov. 2012 futures)

---

*2012 Wheat*

RECENT ACTIONS:  Sold next 10% @ $6.79 July futures.

**NEW DIRECTIVES:  Sell next 10% @ $7.56 July 2012 futures   

                                                If not already covered with Puts on unsold production, talk with your broker immediately!  

                                         

CURRENT OPTION POSITION:  Sept 640 Puts on bushels not covered through insurance revenue products.                                                      

2012 CASH SALES TO DATE:  Total of 60% forward contracted: (03-31-11 Sold 10% @ $9.00 July 12 Futures) (07-19-11 Sold 10% @ $8.36 July 12 Futures) (08-25-11 Sold 10% @ $8.79 July 12 Futures)  (12-30-11 Sold 10% @ $7.26 July 12 Futures)  (01-26-12 Sold 10% @ $7.26 July 12 Futures)  (05-18-12 Sold 10% @ $6.79 July 12 Futures)   

---

*2012 Energy Inputs*

RECENT ACTIONS:  None

   Natural Gas:

Directive: If not already booked, purchase 2012 summer/fall usage, for those with current call hedges, call Katie

New Directive: Place orders to buy $4.00 Calls @ 50 cents per mmbtu on all 2013 and 2014 usage.  These can be filled now!

Diesel: 

Directive: If not already hedged, buy Aug.-Nov. 295 Calls @ 25 cents/gallon

Propane:

Directive: Buy July-Oct. 110 Conway pipeline Calls @ 20 cents

---

Past performance is not indicative of future results.  There is substantial risk involved in trading futures and options which may not be suitable for everyone.  

However, the risk involved with purchasing options is limited to the premium paid plus transaction costs.

866-WE HEDGE AgWest Commodities, Holdrege NE 308-995-8067

July 2010 all over again?

Recently the wheat market strength has had me thinking back to July of 2010.  A time when we saw wheat nearly double in a months time.

If memory serves me correct wheat and some of the other grains like corn made their low prices right before the June 30th report.  Then on the heals of a small Russia Crop, everyone bearish (very bearish) prices, and the funds massively short wheat we saw a rally in CBOT from a 4.25 low in late June to a high of 8.41 on August 6th.

The way that rally ended was most impressive and still stands in my memory.  CBOT wheat hit limit up on the 5th of August and then went nearly limit or limit up the next night only to close that session limit down when everything was said and done.

The best part of the wheat rally is what followed as it was really the start of the commodity rally in general.  The small Russia crop for wheat lead to less feed competition and helped out our corn exports and it also helped out our wheat exports.  When went from no profits in grains to good profits in a hurry.  It lead to many selling a little early as we had been down on prices since the 2008 collapse; but it really started and since lead to another leg up for the grain prices and commodity outlook.

Flash back to the here and now; we have some similarities now; funds are shorter today then they where back in 2010 which gives this rally a chance to be more then explosive and it is once again lead by weather and possible smaller crops.



Can this lead to another leg up for the grain prices?  After all since the 2010 rally wheat has been able to hold very close to the 5.50-6.00 level.  Can this wheat rally give us the support that allows 5.00 corn to now be the low for years to come?  Can it lead wheat back to the highs in 2010-2011?  Will we see butterfly effects that include new all time highs for corn and beans?

Maybe this rally in wheat is just to get things back in line; after all without it would we have had any wheat planted this fall?   Now perhaps getting wheat back in line helps keeping things in balance; helps us not see a huge swing in acres next year.

When it comes to marketing i am not going to get super bullish and not make sales.  But I am also going to remember 2010 and try to spread my risk out; scaling into sales slowly in hopes of a big bull market and I am going to remember prices just a few weeks ago for wheat.  With that in mind maybe I will look at buying some put protection and trying to create min price levels for my grain.

And that protection; i might want to get sooner then later as I don't know if this will be July 2010 all over again or just another correction in a bear market.

Opening Comments 5-18-12

Markets are called mixed this a.m. behind a mixed overnight session that saw a little weakness in beans and continued strength for corn and wheat.  Outside markets are also a little disappointing which could add to a little weakness from the overnight session.

In the overnight session corn was up 3-4 cents, beans where off 3-6 cents, MPLS wheat was firmer by 4-5 cents, KC wheat was 5-6 cents better, and CBOT wheat ended up 5 ½ as the night session ended.  Speaking of night sessions this may be the last break we have as the latest from the CME is that starting Sunday night the markets will run from 5 pm to 2 pm the next day.   Closing time will still be the same at 1:15.  But this has been a changing target.  As of 9:15 outside markets have European wheat up on dry concerns in Russia and cold concerns in parts of EU, despite Facebook’s IPO the stock markets are about unchanged with the DOW even presently, the dollar is about unchanged, and crude is off about 60 cents a barrel.

The outside markets scare me a little bit; but overall it feels as if grains want to move up.  Dry weather is starting to be talked about a little more each day.  Forecasts will start to be market movers.

Nothing to report for export sales this a.m.

Comfortable Changes

Below is a rough draft for a newsletter article that I did up.  Won't come out for a few weeks; but here is a sneak preview..........

Comfortable Changes

Ok…… I do really struggle writing an article for newsletters because of the fact that our grain markets are ever changing and by the time a newsletter gets put together, proofed, and sent out our markets may have changed dramatically.  No one really knows the future the only thing we know is that there be will change.  Our markets are called futures markets just for that reason; that we don’t know what is going to happen with them in the future.

All we know is that there will be change; and plenty of change in prices is what we have experience in the past few years.  Did you know that since our bull markets started in June of 2010 we have had well over 100 (I stopped counting at 100 with 10 months left) moves of 30 cents or more in a couple day period in the KC Wheat contract.  It was just a few weeks ago that we seen beans up about a dollar a bushel in a week or so; follow by down about a dollar a bushel a week or so later.  After a bullish crop report we seen beans move 85 cents from their highs to their lows.  Not mentioning the swings we have had for the other grains like spring wheat, sunflowers, and corn.  Bottom line is our markets are always changing.  So much so that I could never write an article for a couple weeks in the future without expecting some major changes.

Ok I think everyone knows that our markets are always changing.  That we determined and is well known.  What is more important is what we do with those changes; are we able to manage them.  In grain marketing with grain price outlook do we make decisions that are fearful or greedy?  Do we put our self in a situation where we are forced to make bad sales at the wrong time?  Do we fail to make sales when our gut is telling us to sell at nice profitable levels?

Each of you know your answers to the above questions; but with our every changing markets are you able to adapt in a comfortable way?  Do you have a marketing plan that leaves you comfortable at night?  A pro-active risk management strategy that allows you to be successful in the future whether the crop prices for corn, wheat, soybeans, and sunflowers go up, down, or sideways? 

At the end of the day the message is simply get comfortable in our changing market.  For some of you that might mean writing a marketing plan which is something we would be happy to help you with .  For others it might mean simply having a solid crop insurance plan.  Others it might mean making scattered profitable sales to help avoid the extremes price swings that we seem to have.  Many of you might use put options to help protect downside risk in our markets.  Some of you might feel you need to re-own grain sales in case you sell to soon or use min-price contracts.  We can help you with all of these.  Bottom line is your Midwest Cooperatives Grain Marketing team is here to help you find your comfort zone in our ever changing market.  Don’t forget we have all sorts of tools to help you in your grain price risk management; such as the min price contracts, weekly marketing meetings, helping of writing grain marketing plans with the ability to tie in everything from finance to inputs to the sale of grain, and a Country Hedging Branch Office.

So there you go; that is my preach. Get yourself comfortable!

Opening Comments - 5-16-12

The grain markets are called mixed this a.m. behind a mixed choppy overnight session that saw mainly weakness but we have seen outside markets bounce off of their overnight weakness which has most calls a little better then where the overnight session left off at.

In the overnight corn was down 2-4 cents, beans where hit the hardest down 16 on old crop, new crop soybeans where lower by 13-14 cents, MPLS wheat was off 1-2 cents, KC wheat was up ½ of a cent, and CBOT wheat was down a ¼ of a cent.  At 9:25 outside markets have bounced a little bit with EU wheat up about 1 %, the dollar is about unchanged, equities are firmer with the DOW up 84 points, crude is off about 60 cents a barrel, and Gold is down about 8 an ounce.

It looks like I am a little late getting out these comments as markets are now open and as suspected firmer then the overnight session.  We have corn up 3, beans off a dime, KC wheat up a dime, CBOT wheat up about a dime, and MPLS wheat up 5.

Outside markets bouncing and some reported export business with China helping out.  Also dryness talk is starting to heat up perhaps adding a little weather premium into the markets.   Parts of the US and also parts of Russia; talk is that the Russian crop is getting smaller in particular the area that usually is a big exporter.

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

July Soybean Chart

Below is a July Soybean chart; which shows that the next few session will be important.  Was today's bounce a counter trend rally?  Or was the break we have seen the past week or so just a correction in bull soybean market?

Opening Grain Market Comments 5-15-12

Markets are called better behind a better overnight session; while outside markets are mixed and could lead to a little pressure with ideas that the grains open a little softer then where the overnight left off at.

In the overnight session corn was up 5, beans where up 18 on old crop, new crop beans where up 15, KC wheat was up 8-9 cents, CBOT wheat was firmer by 8, and MPLS wheat was 6 higher.  At 8:50 outsides are mixed; EU wheat is up about 1 %, equities are near unchanged with the DOW up 5 points, crude is off about a dime, gold is off 8.00 an ounce, and the US dollar looks like it is making another move up with the cash index at 80.903.

Yesterday we had a crop progress report; that basically showed the majority of the row crops planted with good emergence and a good wheat crop.  We really lack weather premium right now as headlines lately have been great big crops coming.

Basis remains firm for corn and beans; perhaps firming a little bit.  Yesterday we saw open interest in soybeans go up which indicates good commercial interest and end user pricing; not bad thing to happen.

One thing that has been on the headlines lately is the issues in EU.  If it leads to more macro liquidation then the grains could struggle; if not it feels like basis and demand are strong enough that the grains have a chance to bounce from these areas.

I have heard talk of higher protein getting harvested down south.  I seen a train of 13.76 pro yesterday and heard most of 12.5.  Overall higher protein isn’t exactly the best thing.  It acts as a replacement for spring wheat if it is high enough and then it doesn’t get feed and doesn’t help our export program out.  So I think a higher pro crop down south hurts demand a little bit and I think demand is really what wheat needs if we want to have a bull story at some point down the road.  I would also have to think that a higher pro crop means yields are off a little from what was expected……typically pro and yields go hand in hand in a reverse relationship.

One thing we need to watch going forward is the inverse in the grains.  Most have a big inverse between old crop and new crop so if you are storing grain your cost is very high.  It is a good demand sign when things are worth more today then they are tomorrow so to speak but it is also a huge risk when marketing grain as a general rule you don’t want to sit on product threw an inverse.  Every day that goes by we get closer to new crop and the risk becoming greater as along as the inverse is out there.  Bottom line the markets are close to saying if you want to own the grain own it on paper as it doesn’t make sense to sit through the inverse.

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

Opening Comments Grains for 5-14-2012

Markets are called mixed this a.m. behind continued soybean fund liquidation, a choppy overnight session for wheat and corn, and rather weak outside markets.

In the overnight session corn was unchanged on the July contract, new crop Dec corn was up 2, old crop beans were down 25 cents, new crop beans were down 17 cents, KC wheat was unchanged, MPLS wheat was up ½ of a cent, and CBOT wheat was down 3.  At 9:10 outside markets are showing risk off and liquidation presently the equities are weaker with the DOW off 140 points, crude down a little over 2.00 a barrel, the US dollar up nearly 400 at 80.654 on the cash index, and gold is off about 28 an ounce.

Scary outside markets this a.m. and fund liquidation on beans is the story.  The cash story for grains hasn’t changed much; it is still very hard to buy corn and basis is still very strong.  May contracts go off the board today; but in the overnight May corn was up 16 cents. 

With the latest USDA report out of the way we should really turn into a weather type of market.  Good weather probably causes our prices to continue to erode and weather that stresses our crops maybe gives us a weather scare rally at some point.  

Beans showing weakness really doesn’t have much to do with the fundamentals as the last USDA report was not bearish.  But it shows us how important money flow is and the fact that everyone can’t be bullish and long as eventually we ran out of buyers.  Now longer term a price break that helps demand isn’t the worst thing in the world and it maybe gives us a chance to bounce later. 

Until weather or some other story gives the funds a reason to buy look for grains to have plenty of willing sellers on the bounces; as the mentality has really changed to that of sell the rally.  The outside markets haven’t helped us at all for a while either and memories from 2008 are still fresh and the reality is that with perfect weather and weak outside markets a similar fate could be in store.

Please give us a call if you need any help with your marketing plan.

Thanks

Is it time to panic sell? Are you Comfortable?

With the recent sell off in beans; one has to ask themselves what could we see happen in some of the other grains.  How much downside is left in these commodity and grain markets?

First off there are so many factors that will determine where these markets go from here that one really should NOT try to out guess it.  When marketing grain or doing a grain marketing plan you want to search for Comfort.

One thing you can do is try to evaluate the markets with a plan based on what happens in our markets and on the outlook.  For the outlook I like listing possible outcomes both good and bad; both macro items and specific items.

As example one might list Macro items as

The US Dollar
World Economy direction
China
Europe issues
Politics and Policy
ETC



Crop specific items might include

carryout
supply
demand
weather - drought- relative to supply
price - econ 101........
supply trend, demand trend, and price trend

The reason I like to list some of the above is to help get an idea of some of the possibilities that I feel could happen; especially when looking at extremes

One big extreme could be corn yield this year; if we hit 170 or higher we likely are swimming in corn and have corn starting with a 4.00, more then likely a 3.00 and possibly a 2.00

On the other extreme if we have yields like last year or less; we could easily see new highs for corn.  Perhaps close to the 10.00 or so that corn is presently worth in China

So after i have looked at these possibilities i need to ask my self some hard questions as for outlook and what ifs.  Such as if we see a huge drop have I put my self in a comfortable situation?  Will my crop insurance give me all the coverage i need?  Do i need to have more sold?  Do i want to own put option protection as another form of coverage?

What about to the upside; am i comfortable if we go up from here?  Do i have too much sold?   Do i need to own some cheap out of the money call options?

I could go on and on; asking and answer hundreds if not thousands of questions.   But at the end of the day I want to have one thing
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Comfort.  I want to be comfortable so that I never have to Panic sell or Fear sell.   I want to be comfortable enough that I don't lose a wink of sleep at night if the markets go up, if the grain markets go down, or if they just don't do much of nothing.

How you get to your Comfort Zone is something that each of you will have to determine.  You might be there and if your not your gut is probably telling you so.  Listen to it.

There is a saying buy fear and sell greed.  Don't be so uncomfortable that you put yourself in that situation.  Put your self in a comfortable situation where you are making sales and using tools that allow you to be comfortable without thinking that you are getting greedy or that you are fear selling.

Be pro-active as it is the first step in getting comfortable.

Beans get smacked! - Neutral Nick update time

Beans got smacked today so it is time for Neutral Nick to look at his positions in an effort to try and manage his risk.

He went threw all of his positions and felt good about all of the months and all of the commodities other then July beans.

For corn he felt that his p & l graphs where at good support areas and didn't feel the need to chase in which might cause a lot of whipsaw action.

Same for wheat.

Before his soybean adjustments which I will display below he has overall profits in most of the trades he has on and his expiration profits giving him a much more potential.  Those charts have changed since his last update about a week ago.  You can find them at http://grainmarketingplans.blogspot.com/2012/05/neutral-nick-update-nearly-200k-booked.html

Soybeans today broke some major support and could very well see plenty of follow threw weakness; then again if you look at the report a couple days ago you might think beans have plenty more upside.

The corn and wheat markets are at the bottom end of the ranges they have been for some time; if we don't bounce Mr Neutral Nick might have to look to adjust sometime in the near future as he does have put options sold that are now close to or in some cases slightly in the money.  As mentioned before Neutral Nick this time around is using a little bias and his bias for those markets are A we are near a harvest low for wheat and we have year over year month over month decreasing supplies and B the cash corn market has shown no weakness leaving the cheapest spot to buy corn still the board for many so he isn't wanting to adjust at this time and C the new crop corn showing a yield of 166 is a little premature; Nick and myself are in the camp that we should see a weather scare at some point.

Here are Nick's updates and his corresponding bean graphs.

His only trades this week are the sale of 50 July 13.50 puts and 100 of the July 14.50 calls.  With us getting closer to the June expiration of these options this will probably be the last time he sells any July options.  He might buy some; but one thing he has to watch out for is Gamma Risk.

USDA Report Day - Limit up Beans? Limit down corn?

Markets are called mixed and VERY VOLITALE behind a USDA report that was out today.

Calls are all over the board; some saying comments about limit up on beans and limit down on corn; with wheat mostly called steady.  Outside markets are slightly supportive at 8:50 with equities up the DOW firmer by 80 points, crude up 60 cents, Gold up slightly, and the US dollar near unchanged to slightly weaker.

The big headlines are the carryout numbers which have old crop corn carryout at 851 million bushels versus an estimate of 758 and last month at 801.  Another day where the USDA says we will use new crop corn and new crop wheat instead of old crop corn.  This one is getting most off of guard because cash basis has been super strong as have spreads which is telling us that the product isn’t there.  I guess we will see if the market believes the USDA or not; if they do look for some serious weakness; some commented perhaps we see China jump in again?

New crop corn balance sheet came in at 1.88 billion bushels; just a huge number.  The majority of it comes from the fact that the USDA is using a yield of 166 nearly 20 bushels an acre more then this year’s crop of about 147.  Some are saying this is could be the most bearish number we see; I guess only time will tell.  I would think we have a long way to go before we have yields like that; but keep in mind what has happened with the wheat crop down south this year; it seems to have got bigger and bigger and had near perfect weather.  So I guess on perfect weather there is risk that the crop could actually get bigger?   Bottom line if this doesn’t get smaller and the crop doesn’t get smaller things could get rather ugly in the near future.  Add to that the fact that it seems like producers are undersold and under protected things could get interesting and not in a good way. 

World carryout is also bearish for corn; old crop at 127.56 up from last week and new crop at 152.34 which is a huge increase from this year.

World bean carryout 53.24 down from last month’s 55.52 and new crop at 58.07 up slightly from this year but down from last years 69.12.  Overall very tight and leaves the bean bull card on the table.

Wheat world carryout is friendly and maybe rather friendly with it coming in at 197.03 versus 206.27 last month, next years world wheat carryout is pegged at 188.13 another friendly number.

US bean carryout came in very friendly with old crop at 210 which was less then the estimate and less then last months 250.  Increased exports and increased crush.  The new crop is even more friendly at 140 million bushels which beat the estimates by 30 million.  This gets us very tight and perhaps helps save the day for the grains.  I guess time will tell; but overall it says bean prices need to go higher and ration off some demand.

Wheat lately has been a follower and that could be the same today; but overall wheat was friendly at 768 this year less then the estimate and a decrease from last month.  New crop also was better and maybe gets us out of the burdensome area that we have been; the world numbers seem to; new crop came in at 735 million bushels 70 million less then the estimate.

I guess today we will see if corn is still king; if you look at the numbers by them self you should see beans and wheat both very strong and corn very weak. 

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

How do I decide what type of protection?

I was looking today at what gives me the best protection ahead of the USDA crop report.

To answer that question one has to ask more questions; such as how long do I want protection; what type of protection do I need if we move X cents or X dollars up or down......how much do I want to spend.

So after one answers those questions the next thing to do is the what if's; for me I use position book from RJO and run various what if's.

Today I ran the example of if I want to spend $50k in protection using Dec put options what gives me the best bang for my buck.  Do i buy out of the money options?  In the money?  Deep out of the money?  Etc

So I decided to run threw some what if's using Dec corn futures and various strikes.  I believe that I want to have the trigger pulled by July 4th ish; on the cash side; so i ran what if's or theoretically values based on July 6th.

I took 50k and bought as many put options as I could using the following strikes.

5.20 or ATM puts which i figured at 41-42 cents i could buy about 24 of them
5.00 or OTM put which i figured at 31-32 cents i could buy about 32 of them
4.50 or Deep OTM puts which i figured i could buy 77 of them
4.00 or Very Deep OTM (OTM out of the money) which i figured i could buy about 286 of them.

I didn't take into account the more commissions with the more quantity; but here is what i found that gains or losses to be (theoretically based on no volatility changes) at these various futures levels on the Dec Futures

6.00 Dec Futures - all four of the trades are big losers; with the ATM losing the least at 38k loss; followed by the 5.00 puts which lose about 41k, then the 4.50 puts which loss 45k, and lastly the 4.00 puts have lost about all value down about 48k.  Now if we are a producer this is the best option if you don't have 100 % protection because it means we have rallied 80 cents and should have more then paid for the 50k paid in protection


5.00 Dec Futures...give the Higher the strike the more profit. The 5.20 would be up aprox 2500, the 5.00 strikes about 1200, the 4.50 would be losing about 4500 and the 4.00 strikes would have lost you about 14k



4.50 Dec Futures....Here is where you see them all start to make money; this time however the more puts you have the more they make; so the best performance at 4.50 on July 6th ish would be the 4.00 puts which should be up about 75k, followed by the 4.50 puts which should be up about 60k, then followed by the 5.00 up about 48k, and lastly the at the money 5.20 puts are now up only 42k



4.00 Dec Futures....this levels and below is where you really see how well leverage can work for one.....the pattern is the same you are better off having bought more out of the money puts then you are at the money puts even though we are not yet in the money on the 4.00 puts they lead by far; you would now have turned your 50k investment into about 306k profit, your 4.50 would be 176k, your 5.00 would be 111k, and your 5.20 puts would be up about 94k profit



3.50 Dec Futures.....This is where you hit the home run so to speak; turning your 4.00 puts that are worth less then 4 cents when you buy them into about 55 cents each; having bought 286 of them you are now up nearly 750,000 in profits, the others also do good; but not even close versus having the many more 4.00 puts; the 4.50 puts would have about 335k in profit; the 5.00 puts would be up about 111k, and the 5.20 puts up about 94k

Bottom line when deciding what type of coverage you are looking for don't forget to look at the what if's; also keep in mind that the what if's i am looking at are based on 60 days from now; not expiration; as at expiration 4.00 dec futures don't make you any money at 4.00 puts; but in the shorter term they could make you a lot of money

Overall it seems to make sense to buy more OTM if you plan on only holding a short term; they don't perform as well in a sideways market nor an up market; but they are in another league as for performance in a down market

Please give me a call if you have questions

and as always make sure you understand that futures and options are very risky

Here is a screen shot of the what if's that i used in the above example