Grain Outlook
The markets are trying to recover from the bad hang over of the first week of 2013 as grain markets are testing areas that have not been seen since before the start of the worst drought in 100 years.
The genetics of these seeds continue to amaze nearly everyone as Informa now pegs the bean yield over 40 bushels an acre, this is with basically 1 decent rain event in late August, it’s going to be nearly impossible to get anyone to believe that a drought can do that much damage to a crop ever again. We say this with some sarcasm as we have learned that it’s not necessarily the amount of rain but rather the timing of it. The reality is that once again the world continues to consume nearly every grain that is produced and with the high prices the global expansion of grains is at a pace that has never been seen before, but does this pace continue if prices drop? The likelihood is not. As of today Ukraine is offering corn cheaper than Argentina and Argentina is still cheaper than the US, so the bottom line is that the US is not priced to do any business and with SA harvest only weeks away the window for doing export business is quickly coming to a close. The beans are facing the same dilemma as SA harvest is already under way and they are only weeks away from getting the exports started in a robust way.
The USDA will issue the final production figures on Friday and over the past 5 of 6 years the market has experienced a limit move on this day. The reality is that even with tighter stocks (if they even are) the market may quickly rally but be faced with tremendous selling from SA and other growing regions.
The weather in SA remains very good for crop development and appears that record crops will be produced in nearly every corner of SA. The only concern now (and its short lived) is that some of the early harvesting areas are experiencing excessive rain and is postponing some harvest, it needs to be noted that this is not hurting the crops only delaying some of the harvest.
The OI changes in futures shows the index activity as wheat increased by 5016, meal increased by 3523, and beans fell by 171, oil was down 2437 and corn fell by 182.
The option markets quickly caught a bid to things last week as both movement picked up and the return of capital also came back into play. The options will most likely continue to have bids to them throughout the week as the January report is one that has proven to be a vicious market mover. The future spreads are still heavily inverted in corn which still seems to point towards owning the gamma over the Vega. The meal premium is 3-4% over the beans which at this point seems like it should be sold vs. beans. The CH-WH has fallen to the lowest levels in months while the deferred are still much higher, look to own WH calls vs. CH calls and in the deferred to own CZ calls vs. selling WZ calls.
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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