Published Monday morning, 10/22/12
It’s a new day and a new week and after last week’s dismal start to market sentiment and price activity the markets actually finished the week higher vs. the previous week and is continuing the momentum this morning. The beans have had a +30 cent range overnight and is currently trading +15, meal has gained $4-5, oil increased by 50-60 points, corn has gained 3-4 and wheat increased by 9-10.
The harvest is quickly coming to an end with expectations of corn being over 90% completed and could be closer to 95% completed, beans are expected to be pushing over 80% and closer to 85%. Both of these are record paces. The yields remain all over the map, the beans are still the surprise but it does seem that the last few reports are not nearly as impressive as the early yields, the corn remains poor and have shown very little improvement from the early yields in fact from the data that we receive the corn yield is still on decline and could fall closer to 120 when it’s all completed, the only things that would change is the overall harvested acreage which could make yields go up while overall production would fall.
Markets from equities to debt instruments seem to be in somewhat of a holding pattern as global uncertainty looms in every corner, from the EU debt issues to what now seems to be a dead heat for the President of the US. Many of these issues will meet their maker in the next 2-4 weeks and could give much needed relief to pent up interest to participate in various markets as the pursuit of returns will be back on the front page rather than the capital preservation that is currently taking place.
The OI in corn increased by 4562, wheat was up 1103, beans were down 6763; meal was down 806 and oil up 880. The SA weather is starting to get some attention as heavy rains across parts of Argentina is causing a delay in corn plantings, it’s not to the point of corn losing acres yet and shifting to beans but it warrants at least to keep an eye on it. The temperatures in Brazil had reading well over 100 again which is very hot at this time of year, the rains are enough to buy time but considering it’s the equivalent of being in May and they already are 100 degrees it’s far from normal.
The outside markets are showing a lack of interest with equities higher, crude oil is up .53, natural gas is unchanged, RBOB is up .60, $index is weaker, cotton is up .23, the DCE is higher in all markets, the MDEX finished up 53 ringgits and the Matif markets are all higher.
The November options expire on Friday and as we have seen in the past the markets have the tendency to gravitate towards the largest OI’d strike price, the SX is the 16 strike and the CX would be the 750 strike.
The option premiums did start to show a pulse again late in the week last week but are still remarkably low considering price activity. The SX has a trading range of 32 cents so far last night yet the ATM straddle is trading at 29 cents. The deferred bean puts are back above 20% while the downside BO puts have fallen to under 18%, owning these vs. some SM puts could be something to pursue. The December options have 32 calendar days and one USDA report, looking at some various 1x2 spreads might have value such as the CZ 8-850 call spread for under 4 cents. The wheat markets have also started to creep higher as price activity has increased. The skews in wheat have started to flatten out which now favors owning the calls vs. the puts and use futures accordingly.
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
About OTC Global Holdings
Formed in 2007, OTC Global Holdings is headquartered in Houston and New York, with additional offices in Chicago, Jersey City, London and Louisville. It is a leading independent interdealer broker in over the counter commodities and the largest liquidity provider to CME ClearPort and ICE Clear U.S. Through its subsidiaries the company holds a dominant market share in the U.S. and Canadian natural gas markets, the U.S. power markets, crude oil and crude oil options, crude oil products and crude oil product options, agricultural and soft commodities, as well as structured weather and emission derivatives. The company serves more than 250 institutional clients, including 45 members of the Fortune 500, and transacts at over 150 different commodity delivery points. To learn more about the company, please visit www.otcgh.com or go to http://bit.ly/OTCYouTube.
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