Trade Looking at the "Unknowns" in the Market
May 26, 2011
With some key corn growing areas now reaching their "preventive planting" dates producers are certainly faced with some tough decisions. Throw in the fact that spring wheat acres are in serious jeopardy, and the upcoming weather forecasts not boding well for those still waiting to plant, the trade is becoming a little more nervous. The wheat trade in particular is getting extremely nervous. With the funds having barely dipped their toe in the Chicago wheat market, you have to believe the upside potential in the next few weeks could be explosive. Despite global wheat prices being high, I would not suggest being short any of the wheat markets at this venture. Corn may lag a bit as there seems to be some speculation and thoughts that not only could old crop soybean sales be rolled forward into the new crop, but so could old crop corn sales that are still on the books. This is certainly a possibility, but becoming harder for me to digest as I hear reports that a couple more ships bound for Asia have appeared at US ports in both the Gulf and Pacific Northwest. From where I sit, it looks to me like exports are holding steady or if anything gaining some steam. Obviously this could all change in a heartbeat, but for now the situation seems stable. Prices have almost reached my short-term objectives in both corn and beans, and I am starting to feel the trade has almost entirely priced in the unknowns regarding the US acreage estimates. Remember, it is the "unknowns" that increase valuations. As the markets start to learn more about the realities, it will become more comfortable and some air will be taken out of its sails. With this in mind I will be looking to pull the trigger on another small percentage (completing the % I allocated towards pricing on planting hype). This leaves me trying to market my the final 30-40% of my corn and beans on extreme weather related runs or global supply and demand issues that may arise. This is certainly an ample amount of production to be risking on weather and global issues. I would urge you to follow my lead and start looking to lock in just a little more on the final phase of the acreage concerns. My remaining chips will be left on the table split between betting on the yield and global supply/demand issues, as I anticipate domestic demand will stay somewhat intact.
* Today's trade was all about poor weather with wheat leading the move. Drought conditions in Europe, Russia and China being closely monitored on a global scale. With US markets closed Monday for the Memorial Day holiday, traders were keen to catch any slight weather changes or developments in the forecast as they head into an extended holiday. Some of the big boys seem to have scheduled an extended break and squared up positions at the end of today rather than waiting for tomorrow. With old crop corn export sales continuing to look strong, you have to believe those short the corn basis will continue looking for opportunities to bull spread the July vs Sept corn. My thoughts on Export Sales Numbers are in the rest of today's report.
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