EHedger Closing Grain Commentary 3/21/11

Published on: 18:14PM Mar 21, 2011

It was another choppy two-sided trade today in the grains.  December corn finished 11 cents higher at $6.09 ½, November beans finished 11 cents higher at $13.45, and December wheat finished ¾ of a cent lower at $8.26.
Coming in from the overnight session, grains were called higher from outside market strength and a fresh corn sale announcement of 116,000 MTs to an unknown destination. 
Last Friday we received Informa's acreage estimates which would generally be considered bullish.  They have corn acreage pegged at 91.8 million and bean acres down to 75.3 million.  This is especially surprising for soybeans considering the increase in prices this year.  We won't know what the USDA will write down for acreage until the March 31st report but with such large price increases in most commodities we can assume we will see a large increase in overall acres.  The big winners (relatively) would likely be corn and cotton.  Informa is projecting total cotton acres at 13.1 million, which is a fair estimate given the price rise we have seen.  We will probably see more double crop soybean acres as well, possibly affecting overall soybean yield. 
Last week was particularly volatile for grains.  Tuesday we were limit down, and Thursday corn was again limit up.  The weakness started from outside market uncertainty and we can see by the open interest charts and by the COT report that the funds were heavy sellers into this timeframe.  Using futures and options, the funds reduced their net longs by over 54,000 contracts of corn and over 30,000 contracts of soybeans.  When we got the rebound the headlines were mainly from increased corn demand on Thursday's weekly export report and the Informa estimates on Friday.  Also during this time frame we are again having problems with a collapsing US Dollar which has certainly helped most commodities receive a price boost.  With all the information at hand we have to decipher how the market will respond.
A few things we know that still pose downside risk:
The funds are still very long leaving the possibility of more liquidation.
Crush continues to be below expectations.  This leads to question corn feed usage as meal demand has been lowered.
Corn supplies are tight, but we are seeing some of the Asian countries switch from corn demand to cheaper feed grade wheat.
Major technical MA's still lie well below the market.
Market expects USDA to raise overall acres on Mar 31st report. May see more liquidation from longs before the report for this reason.
On a bullish note, there is always the potential for weather scares.  With how wound up this market is traders will likely buy heavily into a weather problem.  Also with all the unrest in the Middle East, oil price rises brings ethanol back into play.  We want to keep upside in the market using call spreads, but we don't want to let these reasons prevent us from selling at these levels.  If you need to get caught up to our recommendations, please call your EHedger broker to discuss your individual operation.


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