EHedger Afternoon Grain Commentary 2/20/13
Feb 20, 2013
Corn, wheat, and soybeans all closed higher despite the large price breaks in the stock market, gold, and crude oil. Generally "risk-off" trades in the outside markets can translate to the similar weakness in the grain markets, but today they were able to trade independently.
Soybean strength continues to dominate the ag markets which is tied to short term supply concerns in the US. The recent old crop soybean sales to China, harvest and logistical delays in Brazil, and inadequate rains in Argentina are all linked to the strength in March beans. There were more rumors floating in the market today that China secured a large amount of old crop beans so we will have to continue to watch the morning announcements for confirmation.
It was a little surprising to see November soybeans keeping pace today closing 12 ¼ cents higher at $12.87. November beans were able to test the 200 day moving average of $12.90. It may be due to the fact that we are coming off the low end of the range.
Egypt’s GASC announced the purchase of 1 cargo of US SRW wheat which was a little less than expected given how competitively priced US wheat is currently. Wheat managed to close higher after trading lower during the morning session. Yesterday Texas released their crop conditions. They still have wheat pegged at only 14% good-to-excellent. The recent precipitation has certainly relieved some of the dryness concerns but we still have a long way to go to significantly improve the overall drought conditions plaguing the wheat country.
Corn and Chicago Wheat are trading within 40 cents of each other which if that spread stays here for long we could see a good amount of wheat being fed. For now the two products will likely have a close correlation in our opinion.
Corn is still in the battle of trying to make sure we ration our tight old crop supply while still pricing in the abundant new crop currently forecasted. The domestic cash market remains strong and may be the source of today’s strength in old crop corn. Supply and Demand table estimates for new crop corn continue to report large carryout levels. We have the Annual Outlook on the 21st and 22nd. Although these numbers are important they aren’t always major market movers. For now we want to stay with the current EHedger producer recommendations. Next directional indicator may come from tomorrow’s EIA ethanol data which was delayed one day due to the Holiday. Export sales will be released on Friday.
Currently our official recommendations call for 30% protection in cash sales, HTAs, or futures (average price of $6.40) and 20% protection in long $5.50 December puts and short $7.00 December calls. We would like to BUY BACK those $7.00 calls and SELL December $4.50 puts for EVEN MONEY. What this does is remove the marginal risk of the trade (the short $7.00 calls) without spending additional premium. It does however limit the amount of protection you will get on those $5.50 puts capping their protection to not below $4.50. It is important to note that this trade is for those who already have the spread on AND have a healthy level of sales and insurance coverage. To go over this strategy in AgYield, please contact us today.
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