Quiet Overnight After Yesterday's Collapse...
Nov 18, 2011
· Grains down sharply yesterday, mostly quiet overnight; Overall commodity meltdown combined with Eurozone fears were too much to handle
· Corn exports yesterday fell to a 13 month low; US corn clearly too expensive on world market; Exports account for only 13% of US corn usage according to most recent USDA numbers
· China has continued to purchase US soybeans out of the Gulf, however no effect on the futures markets have been seen
· Yesterday’s close may have put cash corn below the $6 mark in many areas of the country; Dec ’12 corn hovering just above major support near $5.50
· S. Korean firm bought 125,000mt of corn including 70,000mt of US origin this morning
· Option vol up sharply yesterday; Dec corn vol +8% on the day
· Argentina gov’t sees soy area there at 19 mil/hectares, up slightly from 18.9 last year (1 hectare=2.47 acres); Corn area there unch at 4.9mil/hect
· Argentina corn 62.1% complete up from 58.3% lw
· Funds were reported sellers of 25k corn, 7k soybeans and 5k wheat yesterday
· Hogs posted their biggest daily gain in several weeks yesterday; Some blamed short covering and spec traders looking for turnaround in pork demand
Momentum and technical indicators are pointing to more downside in the grain. Short wheat traders may be overstaying their welcome; Funds short near 30-35k Chicago wheat after yesterday’s collapse.
Producers: Basis is good and carry has deteriorated. Call options are cheap. Selling cash and buying calls or call spreads for March or May corn/soybeans has a defined risk. Holding cash involves basis and spread risk which is likely more than the cost of the options. Also, explore basis contracts. Now is the time to take a pencil to paper and figure out your best strategy for grain in storage.
Specs: We continue to prepare to a short covering rally in wheat. Our N/Z spread we bought in the 45-47 area is now trading 38. We look for a move to even.
Straits Financial does futures/options brokerage for farms, feedlots, elevators and processors. Call Joe Vaclavik at (312) 462-4438 for more information!