The Grains Review
For the week of September 26, 2011

By Matthew Pierce

Friday saw another downside leg in beans with further pressure from South American hedging and weak longs exiting. Wheat was the strength all session and Corn looked at both side of unchanged but with crude untrustworthy above $80.00 this ran into more pressure late in the session. A settle under the 200-day points to more pressure but as I wrote on Friday, I feel the pressure in corn is limited at current levels due to growing demand and Mexican production problems. This does not take into account an expected drop in harvested acreage next Friday with Informa looking for a 400K reduction in corn acreage while bean acreage was pegged at 50K higher than last month. Overall it was a messy session with heavy option volume see in again in corn and wheat. The trade remains leery of a further downside move but is willing to scale in buy corn call spreads at cheap levels establishing their risk looking for a rebound with 59 DTE as of today.

The weekend saw minimal information out of Europe concerning either a solution or a default from Greece. The agricultural overnight was wide ranging with high volume after a quietly higher start. Corn traded both sides of unchanged falling to $6.30 before rebounding and closing in the upper ends of a 16-cents range. Beans were dramatically lower at the bottom end of a 39-cent range before rebounding back to the middle but losing to corn. Wheat tracked corn in a 25-cent range closing near the highs. Both KC and Minny showed strength over CHI with the bull spread scenario in Minneapolis starting to show teeth. This traded back out to 20-cents overnight. Look for more as producers hold tight to their stocks.

Heading into the final week of September ahead of the USDA report there is little for bulls to get excited about early. The USD is flat against the Euro with many waiting for answers. Crude is trading either side of $80.00 offering nothing fresh to the macro side of the market. Fundamentally traders are looking at inspections today with corn expected to be hefty. After that we have to wait for crop progress this afternoon with all eyes on the NW production states. A further decline in conditions with maturity still a week away will have an impact on yields. Then markets wait for the USDA to set acreage and stocks on hand. This comes out on Friday with the trade looking for a mild increase in planted acreage with harvested acreage the contentious point. I expect a small decline while others are looking for it to gain in step with planted. As for stocks, old crop will be a focus after the hefty export sales roll over numbers seen a few weeks ago. With higher old crop stocks, the USDA gives themselves an out to lower production on the Oct report without lowering new crop ending stocks. I highly doubt they “find” the recently lost demand so look for ending stocks to climb on the Oct report.

Overall the week will be violent with fund liquidation an issue moving into the end of the month. With quarter end ahead of us and an ugly quarter at that, there is a serious possibility of another leg lower before markets have legitimate rally potential. The fundamental side of the market is a sleeping bull and should stay that way to start this week. I higher doubt anyone’s going to want to go into the Stocks report short so look for coverage on both sides of the market offering a very choppy future for agriculture.

***Chart courtesy Gecko Software’s Track n’ Trade Pro
Past performance is not necessarily indicative of future results.

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.