EHedger Closing Grain Commentary 10/11/10
Oct 11, 2010
· Corn traded limit up for most of the overnight session but came off limit for the day session.
· Corn/Wheat/Beans/Soymeal/Soyoil will all go back to regular trading limits tomorrow.
· USDA secretary Tom Vilsack is going to outline this administration's plans for bio-fuels on October 21st. Most people are expecting some sort of extension credit for the blender's credit in 2011.
Sunday night the markets opened sharply higher in corn/beans surpassing the synthetic value from Friday's limit up close. Corn stayed 45 cents higher (limit) for most of the night before coming off the highs just before the overnight close. Corn settled the day session up 27 ½ cents after being unable to touch limit again in the day session. Nov beans finished up 17 ½ and Dec wheat finished 10 cents lower. Corn, soybeans, and wheat will all back to regular trading limits tomorrow.
If this buying spree continues, we could see a shortage of futures similar to the 07 wheat market. As we learned that year many producers had cash sales on at $5 - 6 and basis went from 50 cents under to 3.00 under. We are not predicting this will happen but it is something we can try to avoid by not taking the unnecessary risk of leaving the basis open. This also puts most risk in the elevators hands and leaves the margin up to them. Please call your broker to discuss strategies for your particular operation.
With last week's sharp rally in corn, ethanol margins decreased 20 cents per bushel and are now negative (board margins). Blending margins decreased about 20 cents a gallon. If energy prices stay here, corn would have to rally a $1 while ethanol would have to rally 30 cents to completely shut off the discretionary blender.
It all goes back to the corn bullishness. With a battle for acres corn/beans/wheat/cotton could keep feeding off each other through the March planting intentions report. Having the March corn call spreads in place will give us upside potential up to $6.50 (March). If you need additional protection, please call your broker for current strategies.
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