Published Wednesday morning, 10/24/12
The overnight markets have continued where yesterday left off with gains being posted in nearly every market. The grain market seem to be gaining some interest again as the equity markets have lost nearly 4% in the past week, this lowers the overall bench market of returns for the year and gives some more runway to trade and place risk back on knowing that the equity benchmark is now up 11% rather than 15%. The beans are near 10 higher, meal has gained another $3-4, oil increased by 30 points, corn is marginally higher and wheat is up 4-6.
The cash markets seem to also lend support to beans as many locations increased the bids by 2-4 cents yesterday with very little activity of movement. The SA basis is also showing signs of improvement as some the planting delays are becoming more of a concern. The corn basis actually eased a bit yesterday as the export markets are extremely quiet, remember that the export market is only a small part of corn demand, but is the sexy market and one that gets more attention. The ban on exports of wheat, Australia’s wheat crop getting smaller and the fact the wheat prices around the globe are now much higher than corn don’t be surprised to see corn exports come to life after the first of the year as global supplies start to shrink.
The weather in SA continues to be something to be monitored, the excessive rains in parts of Argentina and Brazil has planting well behind normal, but as we have learned from history planting delays due to rain typically does not reduce yield but rather only delay harvest, this should be more of a factor for the spreads in beans and meal. The outside markets are stable this AM with crude oil up .05, natural gas is down .01, RBOB is up .40, gold is down $1, cotton is down 121 $index is stronger, the DCE is higher in beans, meal and oil and unchanged in corn, the Matif markets are all higher and the MDEX finished up 48 ringgits.
The OI in corn increased by 5105, wheat was down 2701, beans were down 2526, meal gained 714, and oil increased by 368.
The world still seems to be teetering between what will it mean if a Republican takes office? At this point it still seems as if the overall center of trading is waiting on the sidelines in every arena but look for resources to be allocated shortly after the election as sitting on capital doesn’t earn a return.
The option markets continue to point that there is not much fear of moving anytime soon. The downside bean puts are still hovering around 20%, the SM puts are 21% while the BO puts are under 18% in the deferred, these seem like the best value for trading gamma and an increase in volatility would only be a bonus. The corn has some interesting structures, look at doing the CZ-CF-CH $8 call butterfly collecting nearly 7 cents. The downside CF puts with deltas could be a way to trade gamma. The wheat isn’t changing very much over the past few sessions, downside WZ and WF puts are in the lower 20’s it’s probably better to do nothing than sell wheat premium in the lower 20’s.
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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