Published Thursday morning, 10/18/12

Could the dog be waking up? The overnight markets are showing signs of life again as things seem to be making an attempt of coming back to life for the bulls. The beans are trading 15-20 higher, meal has gained $4-5, oil gained 25-30, corn is up 4-5 and wheat is up 6-7.

The sales data this morning remains positive this morning with 523.4mt of bean sales, 143mt of meal and 24.5 of bean oil, wheat was decent at 410.0mt while corn continues to struggle with only 166.0mt. The basis on corn is starting to show signs of life in the domestic markets which could be an indication that the farmer has sold all that is available and with harvest virtually done this could be driver that will enhance the future spreads.

The SA weather remains good with rains followed by dryness, planting progress in both Brazil and Argentina is advancing, it’s still behind what is normal but ground is being made up. At this point there is no reason to think that the big numbers that are projected won’t be achieved, but as we mentioned earlier in the week the growing season in SA is in the 1st inning of the game.

The OI in corn increased by 3302, wheat was down 57, beans were down 1172, meal is up 55 and oil is up 4608.

The outside markets are mixed with equities marginally lower, crude oil is down .09, natural gas is down .01, sugar is down .23, cotton is up .79, 4indx is weaker, RBOB is down 367, DCE is higher in all markets, the Matif markets are all higher and the MDEX finished up 16 ringgits.

The option markets continue to show that there is very little interest and that the sentiment is that the market won’t move anytime soon, can we point out that the cotton markets 10 days ago thought the same thing only to have a 11% move over the past 6 trading sessions. We are not saying that grains will have a massive move out of nowhere; we are only pointing out that with all these markets still at historic levels the current volatility levels price in virtually no movement at all. The bean volatility points to only a 20 cent daily range, the corn needs to average less than 11 cents per day. The other interesting thing in corn is how the deferred options are more expensive than the nearby, look at the spreads, the most expensive futures contract in corn is the nearby, why are the nearby options the cheapest? The downside bean puts are in the teens, look to own these and use futures according to market view. The meal remains at a premium to the beans and oil, but when one looks at what the cost is for a 25 delta option is in meal and the price activity that has been seen in recent weeks it’s not that much $. The wheat is hovering in the mid 20’s and if we learn from history this is typically better ownership than a sale, like beans the downside puts are cheaper than the calls.