EHedger Closing Grain Commentary 10/21/2011
Oct 21, 2011
Markets were higher to start the day but sold off into the close. December corn finished ¼ cent lower at $6.49, November soybeans down 12 ¾ cents at $12.12 ¼, and December wheat up 1 ¼ at $6.32.
Despite outside markets trading sharply higher we still found liquidation as we witnessed bear-spreading in corn, beans, and wheat. The latest Commitment of traders report shows another reduction of net long positions in corn and wheat, yet an increase in net longs in soybeans by the "managed money". This report does however point out that fund liquidation has slowed recently which has been reflected in the supportive prices over that week’s timeframe.
The Euro Summit on Sunday can potentially be a major market mover for equities/currencies and whatever weakness or strength we see out of this may affect grains as well when we open Sunday night. Today the market seemed optimistic about it with almost a 300 point rally in the Dow.
Looking out to next year the new crop corn/bean ratio is trading at spread contract lows. Many companies are forecasting an increase in bean acres next year when we believe any acreage increases will flow to corn with the price incentive. I have included a chart of November 12 beans vs December 12 corn on a 1:2 scale.
The fact that Chinese bean demand has been weak and world bean supply is not currently a problem is not helping beans hold support. Unless we see another yield reduction on the November Supply and Demand report, it may take an adverse weather event in South America for beans to trade higher. Corn demand has obviously picked up a bit with the large Chinese sale last week. For the corn market to try to post a significant rally again we may need to see further yield reductions on the November report (which we don’t think we will get) or a significant increase in demand (which may be difficult given all the feed options the world has).
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