Tuesday grains looked like they were going to have a strong day but quickly came off their highs to close lower. March corn finished 6 ¼ lower, March Wheat 8 ¼ lower, and January Soybeans 3 lower.
Most of the bearishness was linked to the US dollar rally mid-morning and the break in other commodities like Gold and Crude Oil after making fresh highs. Originally these markets were called higher this morning after the market was bullishly surprised that President Obama would support the Bush tax cuts. Towards mid-session it became clear this alone wasn't enough to keep outside markets supported and most still want to know if the rest of the democrats will go along.
Corn is also on its heels since there is still no definitive answer on renewing the ethanol subsidies. Open interest has been declining for 10 straight trading sessions which means the liquidation phase may not yet be over. Our thoughts are we could see liquidation extend towards the middle of December as traders close out positions for year end.
Wheat has been the upside leader but managed to break the hardest today. This is likely due to profit taking and position squaring. I hate to sound like a broken record but the quality issue remains at the front of the minds' of the trading community and may continue to provide strength for the wheat market.
Going forward we could see more volatility in December as we come to the end of the year. In January we will find out how many wheat acres were planted, and that will help us figure out how many acres corn and soybeans will have to "buy". We like to have our sales in the cash market with basis locked in and have spring call spreads for upside potential (see hedge recommendations.) If you are looking to add additional protection, please don't hesitate to give your broker a call.
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