Daily Grains Commentary Published Thursday morning, 10/4/12
The music seems as if it is starting to play again as once again the export sales remind us that the world is running out of beans. The beans now have erased all the losses of earlier in the week trading +30, meal has gained $7, oil increased by 30 points, corn increased by 6-8 and wheat has posted gains of 4-5 cents.
The weekly sales data shows that beans had another round of 1.3mmt sold, this brings the total of sales on the books over 830m bushels, the USDA estimate for exports are 1.055b we are in week 6 as of these announcements which calculates out to just shy of 80% of the sales already done with 46 weeks left in the marketing year. The meal sales continue to exceed all expectations as DDG’s are not available, meal had 59.0mt of old crop sales and 316.0mt of new crop sales…the bottom line is that at some point there will be a fight for the balance of the 169 million bushels that the USDA says we will have left, or will we? The corn sales finally got off the matt with 326.0mt sold.
The harvest is quickly coming to an end with expectations of corn nearing 70% for next Monday’s figures and beans will be in the mid 50’s. The bottom line to this is watch basis levels as it is thought that the farmer will pack the balance away. The bean spread seem to be showing that they will need to have big inverses again to draw the product out of the farmers hands as witnessed by this morning’s moves and also right in the teeth of index rolls.
The OI in corn increased by 4405, wheat was down 2643, beans were up 2672, meal was down 1383 and oil increased by 2526.
The weather in Brazil is starting to get some chatter as there were readings as hot as 106 again yesterday with more on the way, it’s still very early but given how bizarre the weather across the US has been for the past 10 months its worth at least mentioning that plantings are being delayed due to the lack of rain and heat. Remember it’s not a problem until it is a problem.
The options have some interesting structures, one would have to go back a long way in history to find when corn volatility was less than bean volatility…the CX is now 1% under the SX, one could buy 2 CX straddles and sell 1 SX straddle and collect, it might not be worth selling the SX but the CX at a discount to both beans and a 2-3% discount to the CZ seems to be best value. The SX-SZ-SF 17 call butterfly at even $ to buy the SZ seems like it could have value as the SX is 5% over the SZ. The wheat markets are trading nearly the same value for the 3 months at 29-30%; it’s probably too cheap to sell given the global outlook of wheat. The BO has increased back to the mid 20’s and what’s even more interesting is the put skew going positive, look to sell puts and buy calls as this pattern typically doesn’t last. The meal remains the wild stallion and will most likely stay that way for the next few months, look to possibly to buy SMH calls vs. selling CH calls.
Editor’s Note: Daily Grain Commentary readers who are equity investors/traders only can gain access to the grain markets through the following exchange traded funds (ETFs).
Grain Markets/Indexes
ELEMENTS MLCX Grains Index Total Return ETNN (GRU, quote)
iPath Dow Jones-UBS Grains Total Return Sub-Index ETN (JJG, quote)
Power Shares DB Agriculture Trust (DBA, quote)
Corn
Teucrium Corn Fund (CORN, quote)
Wheat
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