EHedger Afternoon Grain Commentary 3-16-2012
Mar 16, 2012
Grains finished stronger with wheat leading the way again. May corn finished 4 cents higher at $6.73, May soybeans finished 5 cents higher at $13.74, and May wheat finished 7 ¼ cents higher at $6.72.
Short term supply concerns are still the main driving factor behind the recent price jumps. Old crop soybeans have had the largest rally as the market is concerned with South American soy production. Yesterday’s strong export sales report helped keep the rally going. Now that we have the South American crop coming on board, we can expect them to pick up much of this upcoming world demand. We can see this supply concern in the July-November soybean spread as it has been moving higher since November and closed at +52 ½ cents today. That level actually happens to be right at a long term trendline (see chart) which could provide some resistance here.
Corn has also been gaining support and is now above the 200 day moving average for the first time since November. Commitment of Traders data shows the "managed money" didn’t have much of a position change over the past week and they remain with a net long position of 245,327 contracts. For soybeans, the "managed money" increased their net long by another 19,716 contracts! This makes their net long position 176,091 contracts, a net increase of 143,071 (715.355 million bu) soybeans since the beginning of the year. Obviously they have placed a massive bet on expectations of a short supply and so far it has been working for them. At the beginning of the year, we felt the same way, soybeans were underpriced to corn, especially in the new crop when the corn/bean spread was 2.05 to 1. Now two and a half months later we are already back to a 2.31 to 1 which will help soybeans hold/gain many of those available acres. My point is that this rally may be getting a little overdone to the upside. For old-crop soybeans, we are still running behind pace (comparatively for this time of year) to get to the USDA’s projected export sales estimate. Unless we do a lot more export business than expected this summer, we don’t think that the current USDA’s expected US soybean carryout is too high.
If you need to hedge old crop soybeans, the option volatility is still quite low (relatively speaking) which means buying option protection may not be a bad idea.
For new crop corn we are back above the 100 day moving average. This has been a very strong resistance level indicator for the past couple of months. The next target for the market may be up at the 200 day moving average at $5.95 (see chart).
We expect March to be a volatile month as traders gear up for the Planting Intentions report and Quarterly stocks data. If you have any questions, please contact an EHedger broker today, or sign up for a free trial using the link below. Happy St. Patrick’s Day!!!
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