Advisers Take Their Time

Relatively few cash sales have been made on 2010 corn as advisers and farmers alike were not happy with prices early in the marketing window. Now, with higher futures price opportunities, elevators have widened basis, so cash prices have lagged. This has advisers looking more at futures hedges, options or hedged-to-arrive contracts, rather than cash contracts.

Basis is more than transportation cost, says Jay O’Neil, senior economist at Kansas State University’s International Grains Program. "It is the market’s adjustment factor," he says. "When futures are wacky, buyers may say, ‘No, I’m not ready to buy into that.’"

Just a month or two ago, we were in a "supply push" market. Futures were rallying, but commercials couldn’t find buyers, so basis widened. "Now, with wheat and oilseed production problems, there is less competition in the world market. End users perceive a need to own supplies, as evidenced by strong exports," O’Neil says. "We will see basis rise."

Key Market Factors
> The U.S. is an "island of supply;" strong exports continue.
> U.S. wheat acreage could jump.
> How much will South American bean acreage rise for the 2011 harvest?

—Linda H. Smith

September Stocks

The June Grain Stocks report led traders to think implied feed and residual use of corn during the second quarter was too large based on livestock numbers, use of distillers’ grain and other factors. Several things could happen in the September report, says Darrel Good, University of Illinois economist:
• USDA reports larger-than-expected stocks; feed/residual use is lowered.
• Stocks stay low; USDA adjusts the 2009 crop downward.
• Stocks stay low; 2009 crop remains unchanged. The seemingly large use may be blamed on low quality and inefficiency requiring greater use.
• The large residual is never explained.

New Tool to Hedge Currency Risk

Investors don’t have to be told that the price of one asset, whether it is stocks, commodities or currency, is more volatile than a market basket of assets. After all, that’s the theory behind mutual funds and portfolios. Until now, however, dollar-index futures and options were limited to just six currencies against the dollar—all developed countries and not necessarily where investors and companies are doing business today.

The Wocu, or World Currency Unit, is a new trading index that allows hedging—or it can be used in place of sovereign currencies. When a buyer and seller are in two different countries, they no longer will have to agree on which currency the deal will be priced by.

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