Grain Outlook
The overnight markets have once again given a little for everyone as the markets have traded on both sides but seem to gaining some strength through the early AM hours so far.
The bean and meal spreads showed significant strength yesterday which seems to be pointing towards the recent flat price strength as well, it’s a bit bizarre since the cash markets don’t seem to be showing any significant strength over the same period and if anything it seems that more business is shifting to SA and away from the US. The one factor that could be driving this is the fact that Chinese crush margins over the past few weeks have had a consistent rise and will drive additional import demand. The US margins are decent but meal premiums have been sluggish recently and could start to hear some discussion that US crush could start to slow in the 2nd quarter.
The USDA will release its stocks figures along with final production on Friday and this report over the past 6 years has been anything but dull producing limit moves in corn 5 of the last 6 years. The question that will finally be answered is how many acres were abandoned? Old school think that harvested acres should be 83-84 million but with this the yield would shot up into the upper 120’s leaving production in the range of 10.7-10.9. The CO figure for corn should increase marginally as exports remain poor and ethanol has had no increase, the CO figure could be closer to 700 than 600.
The bean report is just as critical with most thinking that the yield will push near 40 bushels an acre, the question is what do they do with demand? It’s no doubt that we are well ahead of pace for this time of year, but we also see SA premiums more attractive for March forward. The bean CO will most likely increase marginally based on the yield. The wheat seedings are expected to see an increase of 500-1.2 million acres along with a CO also showing a slight increase due to exports not matching up with the USDA projections so far.
The OI in corn increased by 4523, wheat increased by 6920, beans fell by 3141, meal was up 4741 and oil increased by 2700.
The outside markets are mixed but one market to monitor is the Matif rapeseed is up over 8 Euros this AM. The other market to start to watch is the Brazilian Real as this is starting to increase, this has a direct correlation with bean prices as Brazilian farmers get paid in US $’s and like it when the Real is weak.
The option markets are starting to position for Friday as history has shown us that this report is not a dull one and the option premiums are showing us that. The interesting structure in beans is how the SH puts are now at a premium to the calls, look to do some types of 1x2 put spreads capturing the downside positive skew, or also look to buy calls sell put and hedge accordingly. The February premium is escalated vs. the deferred and could create some good opportunities to sell the nearby vs. deferred for those who believe Friday won’t be as extreme as the past few years. The bean oil has big shorts and for those who believe that oil could have a rally coming look at doing some BOH 1x2 call spreads, such as the 51-54 for a debit of 30 points. The meal is the highest in the soycomplex at 26% for the SMH, there could be some value in looking to find something to sell or doing 3 way directional plays to capture the high premiums.
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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