EHedger Closing Grain Commentary 10/12/10
Oct 12, 2010
· The market made new highs for the move in corn
· Corn traded near limit up today, beans followed sharply higher
· USDA secretary Tom Vilsack is going to outline this administration’s plans for bio-fuels on October 21st. Most people are expecting some sort of extension credit for the blender’s credit in 2011.
Grains were sharply higher again for the third day in a row. Today was the first day the banks were back open after Columbus Day and we likely seeing short covering as well as new longs getting into the market. The sharp rally in corn/soybeans today started about mid morning and was as high as 5.84 ¼ before settling at 5.79 (Dec Corn).
We are now 50 cents higher than Friday’s close in December corn. Some strength may have been attributed to short covering from margin calls since the banks were closed yesterday. The bulls are still in charge after Friday’s bullish USDA report. If this buying spree continues, we could see a shortage of futures similar to the 07 wheat market. As we learned that year many producers had cash sales on at $5 – 6 and basis went from 50 cents under to 3.00 under. We are not predicting this will happen but it is something we can try to avoid by not taking the unnecessary risk of leaving the basis open. This also puts most risk in the elevators hands and leaves the margin up to them. Please call your broker to discuss strategies for your particular operation.
With last week’s sharp rally in corn, ethanol margins decreased 20 cents per bushel and are now negative (board margins). Blending margins decreased about 20 cents a gallon. If energy prices stay here, corn would have to rally a $1 while ethanol would have to rally 30 cents to completely shut off the discretionary blender.
It all goes back to the corn bullishness. With a battle for acres corn/beans/wheat/cotton could keep feeding off each other through the March planting intentions report. Having the March corn call spreads in place will give us upside potential up to $6.50 (March). If you need additional protection, please call your broker for current strategies.
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