Grains Commentary
Published Tuesday morning, 10/2/12
The S&P is up over 14% on the year, $ follows $ and the world loves equities over nearly everything else, is it any surprise to see a surge in equities yesterday while grains get punished and it happened to be the 1st day of the new quarter?
What a difference a day makes as the market went home last week thinking that things were back on track and focused on the tight supply of all markets…wrong, the $ flow continues to be too strong as liquidation is taking precedent over fundamentals. The beans fell by another 20+ cents already this morning and now puts it below last week’s lows, corn is down 5-6 and wheat has erased all of last week’s gains as well after yesterday’s fall and the weaker markets this morning.
The question is now where do we go from here? The SA crop sizes are continuing to rise with Brazils bean crop now pegged at 79.0mmt, this is up 1.0mmt from last month, the interesting feature to this is that the crop is just starting to get planted and there are plenty of pockets that have less than ideal growing conditions. The other bearish factor is the ideas of the US yield increasing to 37-38 bushels an acre which puts production above 2.8b, also the world’s largest consumer, China, is on holiday all week this week.
The harvest progress shows that things are moving fast with 41% of the bean crop already harvested and 54% of the corn crop is harvested. These are both setting records of speed and should indicate that the harvest pressure is nearing an end, especially with the market down as much as it is.
The outside markets are mixed with the Dalian still closed the Matif markets are sharply lower, MDEX is lower, the equity markets are trading at a multi-year high, crude oil is up .25, natural gas is up .08, RBOB is down 331, cotton is down .09, sugar is up .14. The OI in corn increased by 1621, wheat is up 4604, beans were up 845, meal fell by 3938, and oil is up 3784.
The option markets are a bit perplexing right now as the CX is trading at a discount to the CZ, given what has taken place over just the past 48 trading hours one would think that gamma is much more valuable than Vega, especially since there is private estimates to be released along with a USDA report before expiry.
The CX vs. WX at a 5% discount also seem like value. The SX vs. the SZ or the SF are the opposite of corn with the SX at a premium, look to sell SX vs. something in the deferred. The wheat market doesn’t seem to know what to focus on, Russia doesn’t need to implement an export ban since their prices are now starting to trade above competitors, if this pattern persists looking at some 1x2 WZ call spread for a low cost could have some value, the WZ 9-10 1x2 is near 10 cents. The bean oil is fighting the tight US balance sheet vs. the glut of the global balance sheet and this could be the reason why volatility stays low, a big move in bean oil right now does not seem to be in the cards.
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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