EHedger Closing Grain Commentary 12-3-10
Dec 04, 2010
Friday grains continued their high volatility trade and finished sharply higher. March corn finished 18 cents higher, Jan soybeans 20 ½ cents higher, and March wheat 30 ½ cents higher.
The Stats Canada report showed an increase for both wheat and canola from what the market was expecting. This was slightly bearish but was overshadowed with outside market strength. Crude oil was hitting new highs for the move today, the US dollar was sharply lower, and March cotton was once again limit-up.
The funds were heavy buyers of corn, soybeans, and wheat. Australia's wheat quality concerns continue to make the wheat market the upside leader. There could be legitimate shortages of high quality wheat around the world. Since a lot of this will go to feed, the expectation is the US will have to make up for the shortfall. Minneapolis and Kansas City wheat will likely be the first to rally on quality concerns, and Chicago wheat will try to follow. This is also something that could keep corn tempered if more and more wheat continues to get fed.
Over the past 3 weeks our markets have been in a liquidation stage. On November 10th, 2010 we had a record combined volume day as well as a record combined open interest for corn, wheat, and soybeans (combined.) Since then volume has been average and open interest has been declining sharply. Also during this timeframe was a large change of ownership between the Index Funds, Large Specs, and Commercials. Establishing new long positions is a really healthy correction now that ownership is in new hands. We could see the liquidation phase extend out into the second week of December, but from the middle of December going into the middle of January we could see more buying interest as we get through the January reports.
If liquidation is done and more money starts pouring back in, it is going to be hard for this market to stay down given the fundamentals. The dryness concerns in Argentina, all the fundamentals that are still in place which took us to the original highs, and the acreage battle; the market has plenty of reasons to be optimistic.
Energy is another thing to watch out for. All the things are in the working for a 2008 style market except $100+ crude oil. Today crude oil made new highs for the move. This is the highest price front-month crude has seen since the liquidation phase in October 2008. This is obviously friendly corn.
As we have mentioned before, in December the markets are susceptible to volatile market swings as traders wrap up for the year. We have witnessed this over the first days of trading this month. December 10th will be the next USDA production report. This is the last major report before the end of the year. In January we will get an influx of data that should provide plenty of direction for the 2011 marketing year. Right now we are comfortable with the cash sales and hedges that we have in place. If you are looking to add additional protection, please don't hesitate to give your broker a call.
We are currently launching the newest addition of the AMMO Program. This program will allow producers to manage their complete farm operation including production costs, cash sales, hedge positions, and insurance coverage. All of the producer's information will then be used to compile a profitability matrix so that the farmer has a clear cut picture of where their farm stands. Please give us a call to learn more about the AMMO Program.
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