Sometimes it’s best to look in the rearview mirror to see where you have been to know where you are going. The soy markets have been kicked in the teeth by yields that have absolutely blown away any expectations, there are now many thinking that the yield could rise to near 40 bushels an acre, if this is correct it will be virtually impossible to every create a drought rally in the soy markets again. The corn yields seem to be still in the 120ish area which would fall in line with what most private estimates are.

The other unknown will be harvested acres, this is still heavily debated and with harvest progress coming so fast it could be that there are just less acres being harvested. The market is down nearly $3 from its highs and has erased the entire summer rally while equities are up nearly 15% on the year, the general public likes equities much more than commodities, there could very well be an exodus from commodities (especially soy) back into equities…$ chases $.

 

The equity market is impressed with the housing starts this AM as it appears that the US housing market has finally turned the corner, if this is indeed the case Obama may have secured another 4 years. The crude oil is up .14, sugar is down .04, cotton is up .10, gold is up $5, the DCE is lower in beans and meal but higher in oil and corn, the Matif is lower in all markets and the MDEX is up 5 ringgits.

 

The progress in SA is good with better rains in the dry areas and net drying in the wet areas, the bottom line is that things are starting out very well and at this point trend to above trend yields should be expected….Remember that last May the US was using a 165 corn yield and 44 bean yield as well, SA is in the 1st inning of the game and at this point has struck out the side and is looking good going into the 2nd inning.

 

The OI in corn increased by 6389, wheat was down 8510, beans are up 2030, meal gained 2071 and oil increased by 4816.

 

The option markets in nearly every arena point to the fact that Elvis has left the building and there is very little interest. The market is still at historic highs and a 10% from current levels is not that hard to do just on order flow. Will the market grind for a while? Most likely yes, will the market wait through the elections to see what direction the US is heading? Most likely yes, is there any dynamic influential news that will change the outlook today or tomorrow? Most likely no, and is there any USDA report coming out that will give more insight?

Not for another 3.5 weeks. The bottom line is that owning options with a market that flops back and forth is difficult, but what could be more difficult is if something does change and one is short volatility at 22% in CZ or beans under 20%. These levels constitute daily ranges of only 10.5 in CZ and 18 cents in SF. At these levels it seems more prudent to sit on the sidelines and wait for something to happen than to sell premium and hope nothing happens. The beans are still less than the oil and meal which is rare, the corn is nearly 6% under wheat which makes looking at various corn vs. wheat strategies attractive.

 

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

Teucrium Wheat (WEAT, quote)

 

About OTC Global Holdings

Formed in 2007, OTC Global Holdings is headquartered in Houston and New York, with additional offices in Chicago, Jersey City, London and Louisville. It is a leading independent interdealer broker in over the counter commodities and the largest liquidity provider to CME ClearPort and ICE Clear U.S. Through its subsidiaries the company holds a dominant market share in the U.S. and Canadian natural gas markets, the U.S. power markets, crude oil and crude oil options, crude oil products and crude oil product options, agricultural and soft commodities, as well as structured weather and emission derivatives. The company serves more than 250 institutional clients, including 45 members of the Fortune 500, and transacts at over 150 different commodity delivery points. To learn more about the company, please visit www.otcgh.com or go to http://bit.ly/OTCYouTube.

 

IMPORTANT NOTICE:  Trading of commodities and commodity futures and options, and other commodity derivatives has substantial risk of loss, and is not suitable or appropriate for all persons.  Past results are not necessarily indicative of future results.  The information in this piece is based on sources that are believed to be reliable, but it is not warranted to be accurate or complete, and no performance or results from use of the information are warranted.  This piece is not a solicitation or offer to purchase or sell commodities or commodity derivatives. Opinions expressed herein are subject to change without notice.