EHedger Closing Grain Commentrary 12/28/10

Published on: 18:48PM Dec 28, 2010

Tuesday wheat and corn were the upside leaders. Soybeans closed stronger but off their highs.  March corn settled 8 cents higher, January soybeans 2 ¾ cents higher, and March wheat 18 cents higher.
Well we are officially settling into new high territory for 2010 in January Soybeans, March Corn, and July Wheat.  The front months carried the most strength while the back months had trouble keeping up.  This was especially the case for beans as November 2011 finished 6 cents lower on the day.
Early strength had a lot to do with the US Dollar weakness.  By mid-morning the dollar came back to unchanged and helped keep corn and beans off their highs.  Corn and wheat are likely catching up to the recent bean strength we have seen.  Hot and dry weather in Argentina is still a major concern for the market and Brazilian weather remains favorable.
Other markets are also making new highs today.  Sugar is making fresh highs while cattle and copper are making all time highs!  This coincides with the loose monetary policy of the US as well as an ever expanding global population and diet change.  China has obviously been the main subject as their growing demand has undoubtedly helped fuel our price rallies, most notably their increase in US soybean demand.
So which events had the most impact in 2010?  For one I would have to say the Russian wheat drought really kick-started this rally. This summer the market watched the Russian heat escalate into a true weather concern until wheat's rally forced corn and beans to follow.  Corn and soybeans really took off after the USDA's October report showed a disappointing corn yield.This summer's hot nights and wet weather were the main factors behind the lower than expected corn yields.
Strong grain prices can also be attributed to increased demand from investors.  Funds held all-time record long positions in corn, wheat, and soybeans in 2010.  We also traded at all-time record open interest and volume late this year.  A lot of this has to do with the sharp increase in ETF money coming into AG markets.  This allowed many of the smaller traders to buy corn ETF's who wouldn't normally be market participants.
So where do we go in 2011?  Fundamentally these markets remain strong.  If the January reports are friendly grains, the acreage battle could keep us strong right into the March 31st planting intentions report.  We like staying well protected in case the bullish bias doesn't hold, and we like to remain with our spring call spreads for upside potential.
Technically the market continues to look strong but is getting towards overbought levels.  The next target for December corn is $5.65, and we are not far away from that.  We are still looking at getting short term put protection on for corn and beans, and after days like today it only looks cheaper to do so.  Implied volatility is very high, so if you are thinking about options please call you broker to discuss strategies.
Markets are expected to be low volume through December 31st as many traders are on vacation.  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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