Grains Commentary Outlook
The overnight markets once again give a little for everyone as decent swings were seen throughout the evening session. The beans have rallied nearly $1 since last Friday and they had the least impact from the USDA while corn has gained only 40 cents. So what should be done now?
The market knows that its job now is to ration demand somehow someway in both beans and corn but with profitable margins in nearly every corner it’s difficult to see where the rationing will take place anytime soon. The poultry and hog markets are profitable for corn, the ethanol margin has improved over the past few weeks (still negative but improving, the new crop margin is already profitable) the export markets are still stagnant which at this point is a blessing. If the US becomes competitive in the export arena for corn then the candle might be lit for a run back to contract highs. The beans continue to do more business than is needed and with articles being blasted out everywhere showing how good the Chinese crush margins are its difficult to see this pattern slowing anytime soon. It’s well known that SA will have massive crops but the logistics could still be a bigger problem or hindrance. The only change that has started to take place over the past 5 days is the US crush margins are falling; the March is down nearly 10 cents while the January calculated out at a negative.
The Argentine weather is starting to get some attention as it is warm and turning drier, we would like to point out that just 3 weeks ago we were discussing the fear of acreage lost to too much rain. The overall crop status is still very good and yes maybe Argentina won’t produce a 55.0mt bean crop or a 27.0mt corn crop but even taking 10% off of both does change the fact that SA will still have a record production season. The US weather will start to get more attention in coming weeks again and this is more of a concern than SA as dry areas still have not had enough moisture this winter, keep a close eye on this as this could create for some dynamic market activity in coming months. Trade will not wait to see on this, there will be tremendous volatility if weather is even slightly off from normal.
The outside markets are mixed with little significant movement. The DCE closed higher in all markets, the Matif is higher and MDEX is higher.
There was 225 bean deliveries last night by ADM, it’s somewhat ironic that they delivered on the last trading day, it’s apparent that they really didn’t want to deliver anything but even more so they didn’t want to pay +50 to buy it back.
The OI in corn fell by 1133, wheat was up 588, beans were down 460, meal increased by 4516 (index purchases is over) oil increased by 528.
The option markets have quickly sucked out the entire premium that was there before the report and is now down to levels that could be worth owning again. The CH is down to 21% with 38 days left and look at the spreads recently; it’s all old crop movement. The SH eased to under 20% again, just look at the price activity over the past 48 hours, the flat price has moved more than the entire value of the straddle. The downside bean put skews still have a slight positive slant but not as attractive as last week. The WH remains in the mid 20’s and may look high when compared to corn but wheat has the tendency to have some volatile moves during the month of February.
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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