The overnight markets are all over the place, most recently collapsing from 7-8CST with beans trading down more than double digits. The meal has quickly lost $3-4, oil remains 20-30 points lower, corn is melting trading down 5-6 and wheat has drifted lower trading down 4-5 cents.
Ok what has changed over the past few weeks? The Chinese crush margins have rebounded back to levels that are now profitable and allowing them to purchase beans again, did the market really think that they were gone for good? The SA weather problem is not a problem and as of right now crops will be huge; maybe not the massive figures that were discussed a month ago but when reductions are only in the hundreds of thousands of tons rather than millions of tons it will still give the world ample supply within the next 3 months. The corn export demand that was thought to have returned to the US by now has not and with every passing day the SA new crop is one day closer, at this point the export figure for US corn will continue to fall and place directly to the CO figure. The bean balance sheet is tight but as we have seen in the past once SA new crop is available we can expect to see a large switch of sales out of US to SA.
The weather in SA is improving in Argentina where is appears to be finally drying out and allowing for additional field work to be done, the corn acres are lost but seems as if beans will not change much.
The basis levels are the one thing that many will attempt to contend as the bullish factor for all markets, yes the basis levels are extremely high for this time of year with beans trading +115…that calculates out to $16 beans. The corn basis is also lofty as it trades in the mid +80’s given these basis levels along with the big inversions of future spreads the market should see significant farmer selling from both the US and SA on further rallies. The outside markets are mixed with equities trading higher, crude oil is up .45, natural gas is down .05, sugar is down .16, gold is down $11, 4index is stronger, cotton is down .37, the DCE is higher in all markets, the MDEX finished up 3 ringgits and as of 8CST the Matif markets were still higher.
The OI in corn increased by 3561, wheat was up 1505, beans are down 3791, meal is up 3107 and oil fell by 4505.
The USDA will release the monthly S&D figures next Tuesday, typically the December report does not have a significant impact and looking at various projections there shouldn’t be much of a change, but let us remember that anything is possible and given what these reports have looked like in the past don’t be caught flat footed.
The January options have 2 weeks left and with the report next Tuesday these could be a very low cost insurance policy for the report. The CF 720 puts are 2.5 cents, The SMF 440 puts are $3 which look like much better value than SF given the fact that January crush is trading at 63 cents. The WF is 19% owning these options, if even for just 3 days won’t break the bank. We have mentioned in the past that the big inverses in futures spreads will most likely collapse at some point so trying to find various plays to capture this still looks attractive, such as buying CN 7 puts vs. selling CZ 6-5 put spread, Buy 2 SN 1460 puts vs. selling 1 SX straddle are just a few.
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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