Grains Commentary - Published Monday morning, 10/29/12
The effects of Sandy are creating havoc across the entire East Coast and could have effects for the next 72 hours if not longer, in the meantime the grain markets are open and it appears that $ flow is leaving the soy markets and shifting back to grains with corn trading +3-4, wheat has gained 4-5, while beans are down 12-14, meal has eased by $3-4 and oil has given up 40-50 points.
The weather in SA seems to be the focal point for grains now as the US season is basically all over. The southern areas of Brazil are seemingly too wet while the northern areas are too dry but let us remember that this is similar to being April/May in the US and what is done today has little effect on yields in February. Argentina continues to have excessive rain which is causing delays in plantings as well which has some thinking that there could be switches from corn to beans. The forecast is not ideal but if it was interpreted it would lean to be more bearish that bullish for the next 10 days.
The outside markets are not doing much considering that a large portion of the East Coast will be without power shortly and not many want to expose themselves to any risk. The DCE closed lower in all markets, the Matif markets are all lower, and the MDEX finished down 69 ringgits.
The OI in corn increased by 6365, wheat was down 1652, beans fell by 10198, meal was up 3684 and oil was down 1509. The basis levels are stable for the time being but what is interesting is the spread from CME corn to Matif corn, the CME was at its lowest point vs. Matif late last week which makes CME look like value vs. others. The bean demand remains robust as does meal demand as both of these markets have 70-80% of the entire sales on the books and this is after the USDA raised the export outlook.
The option markets are shocking, the premiums have absolutely collapsed over the past few weeks, it’s difficult to know where the knife finally lands or when it lands but at these levels is seems that not doing anything rather than selling them at current levels could be a profitable trade…its called capital preservation. But for those who want to try look at buying 2 downside puts in SF vs. selling 1, such as the 1440-15 2x1 put spread and collect 4-5 cents. The downside BO puts are 17-18% all the way through July, while the SM is on the high side compared to beans and oil, look for various relative value trades that have limited risk.
The CF puts are trading down to 21% while the upside calls are in the mid 20’s, the puts seem like better value. The wheat is hovering in the mid 20’s but without any new story it’s difficult to find a reason to step in. There are numerous things to look at with corn vs. wheat in the deferred months, especially with the spread of CH-CN vs. WH-WN…does anyone find it interesting that corn stocks are tighter than wheat yet the wheat spreads are more inverted than corn?
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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