EHedger Closing Grain Commentary 12/29/10
Dec 29, 2010
Wednesday soybeans set back on "profit taking" and fresh rains forecasted for Argentina; wheat and corn were slightly higher. March corn settled ¾ cent higher, January soybeans 9 ¾ cents lower, and March wheat 1 cent higher.
The US Dollar was sharply lower and was probably the main driving factor behind today's support in corn and wheat. Today was the 9th day in a row corn settled higher and coming into today beans were on an 8 day rally as well. It wouldn't be surprising to see more "profit taking" over the next couple of days.
Not much has changed this week besides a better and wetter forecast for Argentina. Argentine weather is expected to be hot and dry but rains coming next week should provide relief. Weekly exports are out tomorrow morning. They are expected to be between 450-650 for wheat, 750-1050 for corn, and 900-1300 for soybeans. It will be important to see if demand is still slow for beans going into the end of the year. It was interesting to see beans fall so abruptly ahead of Thursday's export sales report. Many times we see strong markets on Wednesdays as traders gear up for strong exports. Even with a very weak dollar the market broke beans 10 cents today. This could be a sign of liquidation or expected weak exports.
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As we approach the end of 2010, I want to note that many commodities have made all time highs this year and the bullish bias is holding right to the end of the year. This coincides with the loose monetary policy of the US as well as an ever expanding global population and diet change. China has obviously been the main subject as their growing demand has undoubtedly helped fuel our price rallies, most notably their increase in US soybean demand.
So which events had the most impact in 2010? For one I would have to say the Russian wheat drought really kick-started this rally. This summer the market watched the Russian heat escalate into a true weather concern until wheat's rally forced corn and beans to follow. It wasn't until the USDA's October report which showed a disappointing corn yield that the markets really took off. This summer's hot nights and wet weather were the main factors behind the lower than expected corn yields.
Strong grain prices can also be attributed to increased demand from investors. Funds held all-time record long positions in corn, wheat, and soybeans in 2010. We also traded at all-time record open interest and volume late this year. A lot of this has to do with the sharp increase in ETF money coming into AG markets. This allowed many of the smaller traders to buy corn ETF's who wouldn't normally be market participants.
So where do we go in 2011? Fundamentally these markets remain strong. If the January reports are friendly grains, the acreage battle could keep us strong right into the March 31st planting intentions report. We like staying well protected in case the bullish bias doesn't hold, and we like to remain with our spring call spreads for upside potential.
Technically the market continues to look strong but is getting towards overbought levels. The next target for December corn is $5.65, and we are not far away from that. We are still looking at getting short term put protection on for corn and beans. Implied volatility is very high, so if you are thinking about options please call you broker to discuss strategies.
Markets are expected to be low volume through December 31st as many traders are on vacation. If you are looking to add additional protection, or have any market questions, please don't hesitate to give your broker a call.