Published Wednesday morning, 10/3/12

The overnight trade continues to show that margins are causing $ flow to exit the building as frustration seems to be taking over. The beans have lost double digits again, meal fell by nearly $5, corn gave back 6-8 cents, and wheat has lost 7-8 while bean oil is the shining star trading on the positive side by 3 points.

The FCS figures that were released yesterday afternoon confirm the chatter that has been around for the past 3 weeks with yields improving and supplies growing. Given what this past summer was it appears that these genetic seeds could grow in concrete. The bean yield was raised to 38.2 and the corn yield increased to 123.9. Informa will release their estimates on Friday at 1030CST.

The shift now will focus on demand and with China closed this entire week for holiday it appears the falling knife will continue to fall, but for how long? The markets have erased nearly the entire gains from the 4th of July and have a gap that could be filled down to 1478. The SA weather obviously will be watched through a microscope over the next 6

months, it’s a bit surprising that the market doesn’t care that some plantings in Brazil have been delayed due to excessive heat and dryness; did anyone see that it was 106 in central Brazil yesterday with more of this to follow?

The other markets are waffling around as well with crude oil trading down .99, natural gas is down .06, sugar is unchanged, equities are unchanged, the Matif markets are all lower, Dalian Exchange remains closed and the MDEX snapped back trading up 99 ringgits.

The OI in corn increased by 5123, wheat was down 164, beans were down 33456, meal lost 311, and oil increased by 2787.

The option markets seem to fading as does the price action. It’s a bit surprising to see the CX at such a discount to the CZ considering that there are still 24 calendar days left, for those who believe something can happen these seem to be best value. The SX is at a premium to the deferred which would favor rolling SX into the deferred, but also look at some 1x2 call spreads for the possibility that the USDA keeps things unchanged next week, the SX 16-17 1x2 is less than 6 cents. The wheat options have eroded to near 30% while the downside puts are even cheaper, look to own puts with deltas. The BO actually increased to over 20% again while the deferred BO is under 20%, owning the deferred Vega may not be a bad play considering the stories that oil has domestically. Also with oil share at 34% there could be a quick 2% rally on short covering. The meal is the wild card and will most likely stay that way, don’t finance call spreads with puts as the puts are discounted to the calls.