The Daily Grains Commentary was Published Monday morning, 10/8/12
The overnight market seems to continue to digest the ideas that the yields are still coming in above expectations and that the USDA figures will show significant increases. The beans have eased back by 10-13 cents most of the evening session, meal has lost $4, oil is down 25-30 points, and corn fell by another 5-7 while wheat is standing alone trading on the positive side gaining 2-4 cents.
The ongoing yield checks that are being reported continue to surprise nearly everyone with many posting “best ever” yields in beans, the point that is not being discussed is the ones that have fallen by the wayside with disastrous yields along with the overall harvested acres still being questioned. This report will set the tone for the next 30 days and beyond and it seems that it would be out of character for the USDA to quickly spike the yields 3 bushels from the previous month. The corn yields are not nearly as impressive as what is being discussed in bean side with corn yields averaging well below the normal and most field checks are disappointing. It seems that a corn yield below 120 is still in the cards, while the bean yields will improve but from what we have gathered by only 1-1.5 bushels, not the 3 bushels that are actively being discussed.
The weather in Brazil seems to be improving as the weekend saw some scattered rain events with more forecasted in the coming week. The amounts and coverage are still on the light side but in general it appears to be enough to promote field work and buy time for another few days. Australia seems to be the force that is taking wheat higher this AM with very little rainfall, also continued drops in the Russian crops with some estimates now falling below 70.0mmt.

The weekly condition reports won’t be released until tomorrow due to the Government holiday today. The expectations are for corn harvest to be nearing 70% completed and beans should push close to 60% completed.

The OI in corn fell by 4416, wheat is up 1247, beans increased by 4568, meal was up 181 and oil increased by 5472. The outside markets are also lending to the weakness as the Dalian Exchange reopened with prices falling sharply to catch up from the weakness of CME, the Matif markets are all lower, the MDEX is down 20 ringgits, the $index is gaining vs. global currencies, crude oil is lower, natural gas is down .03, sugar is down .09, cotton is up .19.

The option markets continue to show that there is fear that a big move is coming on Thursday in the beans but not in corn, the SX is pushing into the upper 20’s vs. the SF trading in the mid 20’s while the CX remains at a slight discount to the CZ. The CX seems to be the best value for the USDA report while rolling out of SX into the deferred before Thursday could be worth pursuing as the clock will be spinning fast once the statistics are released. The BOZ is hovering in the mid 20’s which for BO is a bit pricy, look to buy call spreads and sell puts and use futures to hedge it. The meal is hovering in the mid 20’s, at these levels is a bit of no-mans-land it’s too cheap to sell and too expensive to own, would be patient and look for levels in the lower 20’s for value. Wheat is wheat and seems to be a bit sleepy right now, but as we know wheat can wake very angry, pressing volatility into the mid 20’s has not been profitable over the past few years, look to own puts with deltas in the mid 20’s.

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)

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