Published Wednesday morning, 10/10/12
The overnight markets remain subdued as it’s now just a waiting game for another USDA report. The beans are trading with minor losses so far in the early AM hours, meal has lost a few $’s while oil has gained a small amount. The wheat is trading slightly higher as weather fears in Australia are catching more attention and corn is down a few cents as further long liquidation is taking place.
The market will hold its breath until tomorrow morning when the USDA will issue the most recent crop sizes along with supplies, the ranges are as wide as the Grand Canyon with a 12% variance from top to bottom, never has it been this wide for this report. We have mentioned this in the past but it’s worth reminding, it’s not the yield that matters but rather the overall size of the crop which implies the overall harvested acres. The corn range is from 9.9-11.4 billion bushels while beans are from 2.6-2.850 billion bushels. The other question is how do they handle the demand side? If the supply side on beans rises then they can start to play with exports so the bottom line on the bean stocks may not change even with the higher output.
The weather in SA has been improving with rains moving across the drier areas of Brazil, Argentina has had no shortage of rainfall and could use some drying days. The overall perception of SA weather is that it has been less than ideal but far from a disaster. The planting pace in both Argentina and Brazil are running about 5-9% behind for both beans and corn which is not that big of an issue other than early exports that typically take place.
The outside markets are also subdued with crude trading up .02, natural gas is up .02, RBOB is up 2.53, $index is slightly lower, cotton is down .04, sugar is down .24, gold is up $3, the Dalian Exchange is lower in beans and meal but higher in oil and corn, the Matif markets are higher in corn and wheat while rapeseed is lower and the MDEX is up 19 ringgits.
The palm oil stocks were released earlier today and showed record supply at 2.4mmt, this is not a surprise and likely the reason for palm oil to be trading at 4 year lows late last week.
The OI in corn increased by 3261, wheat was up 273, beans were down 6534, meal increased by 315 and oil increased by 7184.
The option markets have some very different ideas for tomorrow, it is apparent that most view that beans will have a big move while corn will not…it’s a bit surprising considering what corn has done the past few reports. The SX volatility (though this does not mean that much when only 2 weeks left) is higher than the CX, this is what is bizarre, and corn typically trades at significant premiums. The CX 730-760 strangle can be purchased while selling the SX 15/1650 strangle and collect small amounts. The BO remains in the 20’s and still seems to favor buying call spreads and selling puts. The wheat is stagnant in the upper 20’s to near 30% this is too low to sell and likely not cheap enough to buy, but history has shown us that the next 5% move from these levels most likely won’t be down.
Remember that premiums typically catch a bid into the report and get kicked in the head post report, look for spreads or relationships.
The weekly export sales data will not be released tomorrow morning due to the holiday this past Monday, the sales will be released on Friday morning.
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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