The global supply side remains snug in every arena and will remain that way for months to come as we watch the production cycle in SA. As of now SA isn’t offering any beans any more, that means the US will do all the business for the next 4-5 months and we already have nearly 80% of the sales on the books. The corn demand from an export side is lagging and it should be considering SA is offering corn $70 a ton cheaper than the US, but corn is consumed by the domestic markets and as of now it seems that all the rationing has taken place which means the only way for this to change is to have the consumption increase.
The next USDA report is only 11 days away and this will give us an indication of what supplies will look like. The corn yields have been consistently all over the map but looking at the information we gather we would expect to see the yields drop by another 2-3 bushels while the beans could see an improvement by .5-1 bushel an acre. The bigger question will be the overall production as the harvested acres are still in question, history points that these figures could drop sharply and show the overall production of corn to fall between 10.2-10.4 billion…do the math…we don’t have any corn if this is what comes out. The bean production is expected to fall between 2.6-2.7 billion bushels.
The outside markets are mixed with sugar leading the charge higher gaining 3%, crude oil is lower, RBOB is down .09, stocks are higher, the Dalian Exchange is closed all week, the MDEX is at a 2 year low trading down 83 ringgits, the Matif markets are lower in wheat and rapeseed but higher in corn.
The OI in corn increased by 28157, wheat was up 4876, beans fell by 1330, meal is down 1110 and oil fell by 888.
The weather in SA will be monitored very closely over the next 3-5 months, as of now things seem to be in decent shape with only a few areas concerned of dryness. The one factor that could be an issue is the northern areas of Brazil is the driest and this is where early beans come from, this would lead to a bullish spread situation. The early planting of corn in Argentina is a bit behind due to excessive rains.
The option markets have some interesting structures, the November options have 25 calendar days left and considering what the month of September did owning gamma is a good thing. The CX ATM straddle 1.5xs vs. selling the ATM WX straddle or 2 CX ATM straddles vs. selling 1 SX ATM straddle could be something that has value. The BOZ has a steep call skew that calculates out to have some very low cost call spreads for anyone that believes that oil could have life. The SF bean options vs. the SX could be a decent spread, especially on the calls, look to buy either the SZ or the SF calls vs. the SX. The SMX vs. the deferred could have some merit to own the deferred at a 4-5% discount.

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