EHedger Closing Grain Commentary 8/27/10

Published on: 15:10PM Aug 27, 2010


It was a strong day for the grains after this week’s choppy trade.
Outside markets kept grains on the defensive for the first half of the week. Strong sales and a weaker dollar kept grains supported Thursday/Friday. For the week corn is down ¼ cent, November soybeans were up 22, and December wheat was down 17.
Today’s strength in equities/commodities came after Federal Reserve Chairman Bernanke’s speech which basically said the Fed would take action if necessary to support the US economy.
The Commitment of Traders report shows that the Large Spec Trader decreased their net long position on corn by 14047 contracts (Futures and Options combined.) For soybeans they decreased their net long position by 8029 contracts. For all-wheat they increased their net long position by 6,957 contracts. The funds still hold sizeable net long positions in corn/wheat/beans.
Early yield reports continue to come in below year-ago numbers for corn and above year ago numbers for soybeans. It is obviously still very early and we will have to see if this trend continues. Corn continues to be supported by good demand, uncertainty on the final crop size and on the fact that corn needs to "buy" acres next year.  Until there is more evidence on the crop size, it will be hard for the corn market to fall apart.  At the same time, we are just beginning harvest and the speculators have near-record "long" positions.  This combination could easily cause a large sell-off from these levels as we head further into harvest.  The cash markets have already started to separate from the futures as basis levels have plummeted in recent weeks.  This could spill over into the futures markets and cause a sell-off over the next 30-45 days.  Once harvest is over, corn should remain relatively strong as we head into next spring.
Soybean basis levels have dropped sharply as fresh soybean supplies are beginning to filter in from the Delta.  Early yield reports look promising and we still believe that the national soybean yield is going up from the latest USDA estimates.  Soybean options continue to be priced at historically low levels.  This means that producers can buy puts or calls at very cheap levels.  We currently have on November calls to protect our sales.  Soybeans puts are also very cheap and would be a good alternative for producers who don't want to make additional sales at this time but still want downside protection.

Wheat was the weakest of the three this week.  The wheat market is on a large break coming from a large rally.  Prices are currently at mid-level of the highs and lows and looking for direction.  Prices are being set for crop insurance right now and by Sep. 15 we will know the Guarantee price.  As long as prices remain here or higher during that timeframe, we should see a sharp increase in acres.  This is weighing on prices.  The still unknown size of the Russian crop and how the export ban will affect our exports is supporting prices at these levels.  Our exports have picked up, but will need to increase from current levels to justify these prices.  I think we are sitting good on our hedges for now.