EHedger Afternoon Grain Commentary 5/17/12

Published on: 16:17PM May 17, 2012

Grains continued their rally higher on further bull spreading and dry weather concerns in Russia.  July wheat led the way finishing 19 cents higher at $6.57 ¾.   July soybeans finished 16 cents higher at $14.38 and July corn 5 cents higher at $6.25.

The grains held support today despite the selloff in the outside markets like the Dow and Crude oil.  We had the strongest rally in Chicago wheat as the Russian weather bureau forecaster is calling for a "considerable size area" under fire weather warning through the 19th.  One day after the latest FOMC minutes we are finding treasuries and gold sharply higher.  The fact that the Fed is hinting towards another possible round of Quantitative easing could bring support into commodities as the market tries to own "hard assets" as an inflation hedge.

With stronger ethanol numbers yesterday and stronger CIF basis today, corn was able to continue it’s "bullspreading" pattern to finish the July – Dec corn spread at + 96 ¾ which is the highest level it has been since report day (May 9th).  July – November soybean spreads were so strong they actually made new spread contract highs at +$1.34!  This is despite the fact that both corn and soybean export sales were below the estimates this morning.  Soybeans did have a sale announcement of 480,000 MTs of old crop to China which contributed to this strength.

As I said yesterday, Chicago wheat was the one contract the funds were heavily short in (beside Nat Gas) and as soon as they have to short cover it can mean additional strength.  Open interest dropped by almost 10,000 contracts from yesterday’s trade so all signs are pointing to fund liquidation of short wheat positions.

Chart: December Corn  

December Corn

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