EHedger Closing Grain Commentary 12/21/10

Published on: 18:18PM Dec 21, 2010

Tuesday grains settled mixed to higher with March corn up 2 ¾, Jan Soybeans up 11, and March wheat down 4 ½ cents.   
Today was another low volume day for commodities and the moves were rather erratic.  Soybeans were stronger largely due to hot and dry weather forecasted for Argentina in the next 2 weeks.  For Brazil, weather looks favorable.  Also coming around the corner is the January reports, which have been anticipated to be friendly grains.  Strength in cotton and other commodities like crude oil also helped provide support for our markets today.  Cotton was the major mover with a limit up settlement for the second day in a row.  We are making all time fresh highs in cotton, even dating back to inflation adjusted civil war levels. The livestock market has been making solid gains as well, April cattle was just under 1.10 today.  The funds are holding sizable net long positions in all of these commodities using futures/options.  In fact, the only US exchange based commodity they are net short (using Futures/Options) is Natural Gas, and this is due to our excess reserves.  This is one of many good reasons to use caution when everyone seems to be so bullish.  If the funds roll their money out of grains and into other sectors like energies, this could be short term negative.  I am not saying this is going to happen, but I would certainly recommend having some protection on going into the New Year and the January reports.   Aside from making additional cash sales, one way to get protection on would be to buy short term puts to get through the report.  March corn and soybean puts are still rather expensive, but having orders in to get puts bought the next time we see a rally may not be a bad idea.
Markets will be closed for Christmas Eve and reopen that following Sunday.  Between now and then we could continue to see high volatility on low volume.  Last year on December 23rd, we saw total corn volume at only 82998, a fraction of what we typically do.  If you are looking to add additional protection, or have any market questions, please don't hesitate to give your broker a call.


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