Most of the markets were negative today
Apr 20, 2009
The market started off the week where it left off last Friday—negative. All commodities opened off sharp today because of the strength in the dollar and big weakness in the oil market. The stock market was off over 200 points as well. It’s all suggesting there are big concerns about the global economic health and, in result, recovery is still in question. The bond and t-bill are up sharply today as well which indicates the banking industry is still a concern to markets. Bottom line: The negative tone in the outside markets overpowered the market’s concern about wet weather.
Looking forward, weather outlooks are starting to suggest the Midwest will start to dry out as we get into early May. The corn crop may be a little late getting in but with good moisture conditions it will catch up quickly. My only concern is I’ve seen years in the past where it was wet in the spring and by mid-summer you could not catch a rain. This concern will keep the market nervous until we get to mid-June. If the weather concern does not materialize by then I get very nervous about corn due to the large supply of unpriced inventory in farmers hands.
In regards to beans, the market broke hard today. New crop beans moved below $9 for a while before rebounding. As we have been suggesting for the last couple of weeks, the real winner has been the old crop/new crop bean spread. It appears to be gaining today and near-term I see little reason for the spread not to continue to widen closer to the $2.25 level.
The near-term picture for beans will continue to be China’s desire to buy our beans since they are cheaper than domestic prices and because Argentina is still having problems between the government and producers. My big concern continues to be when will they release their inventory down south. Will it be June/July or August—right before our crop comes on board? There are also reports that China intends to slow down their stock piling of bean inventory by summer. If your trading the July/November bean spread, be careful to not over stay your welcome. I would really start looking at being on the sidelines by early June.
Wheat did not escape the bears’ influence today either. At one time, Chicago wheat was down more than 22 cents. With July wheat now at $5.13, we are entering a price range where it’s very difficult to be extremely negative. I’ve said for some time the most bearish I can really be is $4.80. I believe the end user wanting to buy inventory should start developing a game plan on how they want to enter the market. I would suggest a scale down call buying campaign starting in late May and be done by late July. Once we get into August and the market starts to close back above the 20 day moving average, I would suggest moving from a long call to a straight long futures position. If you’re an end user and interested in protecting your long term wheat needs, I believe now is the time to start preparing your game plan for buying.
It goes without saying I’m holding onto hedges but not adding any new selling position at this time. I’m simply waiting for the harvest time period before I start scale out of hedges as the cash inventory is delivered.
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