The Grains Review
For the week of September 19, 2011

By Matthew Pierce

Friday saw messy pressure on the market with harvest going into high gear for corn and beans. This was reflected with pressure under the 100-day MA in beans and under the psychological support in corn at $7.00. There was little in the way of fresh information following Thursday’s FSA numbers that were argued both bullish and bearish though out the day. The fact is technicals are still in charge which offers even more downside for the trade coming back this week. This was obvious on the overnight session. There was talk of Argentinean dryness but this is still early with major corn planting in Cordoba underway but still has time before switches need occur. Corn planting is currently estimated at only 4.3%. Wheat was a mess with rains expected to hit HRW regions which pulled KC to new range lows versus CHI. This is liquidation and hopeful hedging by producers looking at the recent rains as enough. I still fade this but cannot step in front of a train so beware of you are like me and remain bullish KWH-WH. The CN12-CZ12 spread ended just over 90-cents showing a 17-cent decline on the week. This is just a start with many, myself included feeling this spread should be trading at or near even if not a solid carry. We have plenty of corn using current demand figures so if the USDA is right about demand destruction this will likely be a major mover in weeks and months to come. With the front end spreads showing a carry, I cannot justify any major inverse so I would look at this as a bear spread opportunity.

The weekend saw rains hit the central part of the US stalling harvest but it remains early and the forecast shows below average precipitation and above average temperatures so any threat is minimal at best. The bigger issue and reason for the overnight weakness was the Euro with pressure building concerning Greek debt defaults. World grain values took a hit as Russian values tumble looking for some export interest. Current values at $270 per tonne show a $20/tonne decline week on week. This is in spite of growing interest from the feed sector in Western Europe as Barley and corn are replaced. This was spurred by Strategie Grains stating EU wheat consumption will increase by 4.6 MMT over the next year.

The overnight session started off on the defensive and it remained so through the close after a choppy session.  Corn, Beans and Wheat all lost in step with nothing really seen in intra or inter market spreads. Bean oil lost to meal as world contraction looks to impede consumption. The one glimmer of hope is talk coming from China that they are looking to buy world corn following the price break in US markets. Nothing more specific than talk but with prices up 5% on the week in China there is evidence that they have a distinct need. Looking at beans, the American Soybean association stated they expect Chinese imports to increase by 5% next year…nothing like talking your position.

Heading into the day session markets have pressure from macros, weather turning bearish for harvest while bullish for HRW planting, bullish weather for Argentinean corn planting and concerns over world contraction. The impact on the trade this week should be negative as basis suffers from hedge pressure, weak longs run for the hills and funds add to shorts in wheat. Technically traders have no support with all markets reaching for bottoms without any signal that one has been reached. Bulls need to be cautious with more and more discussion concerning world economic woes. This will put everyone on their heels for the immediate future allowing for a further pullback in price, but this will not last too much longer with US stocks too low for this to fall out of bed from current levels.

Disclaimer: Past performance is not indicative of future results. Trading futures and options involves substantial risk of loss and is not suitable for all investors. Fundamental factors, seasonal and weather trends, daily news, and other current events may have already been factored into the markets. The use of stop loss or contingent orders may not protect profits and may not limit losses to the amount intended. Certain market conditions make it difficult or impossible to execute such orders.