The Grains Review for Oct 2012

By Matthew Pierce

The situation coming back from the weekend is rather muted. The “Frankenstorm” off the East Coast has all markets grinding to a halt with only commodities actually expected to trade a full session. Domestic equities are closed, bonds are closing early and all floors in the east are closed today and likely tomorrow. Transit systems in NY are shutdown so even electronic participation should be rather low with many on the East Coast, my friends included, hunkering down with bottled water and wine waiting out the storm.

Looking at the overnight traders saw pressure in beans as demand worries are sneaking into the trade but this is a minor issue in the big picture. Talking to many South American producers over the past week I get a general picture that Brazil may reach, stressing may, 80 MMT with Argentina likely missing their lofty expectations by 2-4 MMT in beans and 1-2 MMT in corn. This makes the current prices far more warranted in my opinion. Stressing a simple point. Remember how lofty our expectations were in March and April and the actual results. South America is likely to trend in only one direction and that is lower so the downside from current levels should be limited as we move into the production cycle.

Another note from the overnight occurred between 4-5 AM CST. A big volume spike in corn and wheat helped these markets recover into positive territory but this did not occur in beans or meal for that matter.

Looking at the day session, it’s going to be interesting to see who’s all involved. Prices are moving wildly into the later hours of the morning with fresh information limited. Governmental reports are all delayed until tomorrow at the earliest so export inspections and harvest progress will not come out. There was a report out from the Chinese AG Minister stating bean imports will reach 57.5 MMT this year showing a 9.2% increase year on year. This is actually less than many are expecting with a number closer to 59 floating around the industry. Looking to wheat, Russian and Ukrainian exports are slowing but India is looking to fill the void. This is unlikely due to a lack of infrastructure and antiquated transit system there but they will continue to push the export situation which will most likely impact demand from SE Asian countries.

Outside of these small factors, look for a rather muted session as the focus of the nation remains on the storm off the East Coast. Good luck to all out there during the storm with the thoughts of Midwesterners with you.

PITGURU Weekly Report: Grain Review

Thursday saw a mixed session with beans and wheat showing good strength on spread reversals against corn with the latter struggling on either side of unchanged until the final couple brackets. Corn rallied into the close due to concerns over wet weather dominating the central part of the US for the next 10 days. Thursday’s midday weather maps confirmed these fears which allowed for bulls to win the day all over the floor. Beans were the strength on small buying and spread reversals but the rally does not feel like it has legs. The weak sales and slow planting are bearish impacts. When farmers cannot get corn in in a timely manner they switch to the shorter season beans. Meal exploded against oil on oilshare reversals with bull spreads winning on profit taking as well. This like the bean rally does not feel long lived. Wheat acted well but closed off highs on profit taking by weak longs heading into the three day weekend. KC and Minni lost slightly to CHI wheat on the close after showing good strength early. This again is attributed to profit taking in both high protein markets. In my opinion nothing on the fundamental side changed to bearish for either crop so continue to look for strength here. KWN-CN reached $2.00 briefly before closing just under. I think this was a good level for entrenched bulls to exit longs in KC and saw just that heading into the later stages of the session. I believe there remains great potential but the market has very light volume making moves extreme. Option expiration brought no fireworks to the trade with limited volume at pegged strikes. A subtle bearish bias with options exercising and abandonments in beans with 1317 1380 SK calls abandoned and 628 puts exercised. In hindsight I feel this was not a good move.

The overnight session started strong and continued strong through the close with wheat the price leader. This is due to excessive weather problems in the southern plains and continued flooding in spring wheat areas. KC and Minni dominated price action on speculative buying against corn. KWN-CN exploded by 15-cents overnight with KWN-WN gaining 10-cents. Corn rallied but lagged behind closing in the middle of the range well off nightly highs. Beans lagged but were higher with oil regaining a bit of Friday’s losses versus meal. Oats were higher again on planting concerns with weather outlooks more bullish this morning. The macros side was supportive adding to the growing momentum.

Heading into the day session traders saw Iraq buy 300 TMT US and Aussie wheat with further details expected during the day session. Markets are also waiting to see the results of the Saudi deal. Outside of this I see bullish weather forecasts, a weak USD and crude holding green. I think the overnight momentum points to double digit gains in corn and wheat with nothing looking to change the pattern markets are in. Technicals remain mixed with beans holding the best overall stance. I feel the picture to start this week and the end of April is positive for bulls with weather, demand and fear creeping back into the marketplace.