EHedger Grain Commentary 9-22-2011
Sep 22, 2011
Most stock and commodity markets seem to be in liquidation mode and grains are no exception. December corn finished 35 ¾ cents lower at $6.50, November soybeans down 37 ½ cents at $12.83, and December wheat down 33 cents at $6.33 ¾.
Since the grain close at 1:15 pm yesterday until the time the grains closed today at 1:15 pm the Dow Jones futures have dropped 721 points or 6.65%. We also had a general risk off trade where crude oil lost $6.78 or 7.8% in that same time frame. Corn on the other hand lost 5.21% of its value during this time frame. When we see a general "risk-off" trade it tends to affect many markets, especially ones the large speculators are loaded up with long positions in (like ag futures). On top of this, we are in harvest, yields generally seem to be coming back better than expectations, wheat is underpriced to corn (feed argument), and we have been trading at record levels this year. Bulls will make the argument that we are still going to have a tight carryout. This may be the case but we have ending stocks being released at the end of the month, and then we will have the October supply and demand report around the corner from there. You have to ask: what will happen if we see an increase in ending stocks and a potential yield increase on the Oct supply and demand report?
One thing to remember about the funds is that they can easily get out even faster than they got in, and that may be what we are seeing right now. Throughout the year you can see where it made sense to buy every break that we saw, but now we are in harvest and we are seeing another potential outside market crisis which can highly affect grains. Looking at the December corn chart, I would say the next downside target (maybe support) would be at the 200 day moving average of $6.40, and then below there at the 38.2% retracement level of $6.285. Of course if the next few reports come back bearish all bets are off. Anyone who has sold quite a bit and wants to get upside protection for corn now would be a good time to do so for harvest. We actually were able to get filled buying back our short March $9 corn calls for 6 ½ cents today.
For soybeans we have found support at these levels all year long with that massive trading range we had for November. At this time we may see support here just like we did before but if you need downside coverage I wouldn’t take chances and I would either make sales or at least look at put protection. We can always buy back the calls for upside potential as production is still unknown and there are always chances for weather events in S. America to take us higher. We know the market has been loaded up selling soybean puts as volatility has been extremely low for bean puts. If we continue to break this could accelerate the downside move as option writers scramble to cover the short puts. We have had soybean sales to China with the most recent one this morning for 180,000 MTs for 11/12 delivery, but we have also seen cancellations from them of 240,000 MTs just a couple weeks ago.
If you would like to double check where you stand after the most recent break please give an EHedger broker a call and we can go over your position in AMMO. Happy Friday tomorrow and good luck with the rest of harvest!
Chart: December corn Grey Line = 200 day Moving average, dotted line = first retracement
Chart: November beans
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