The Softs Review
For the week of November 7, 2011

By Jurgens H. Bauer

The MF Global situation has brought a severe black eye to the industry. There seems to be money missing and there are reports the FBI is involved in a criminal probe. The exchanges took action last week, banning orders other than for liquidation in MFG accounts. But how can you tell which is which without seeing each position? As a result many orders were not handled. In other words, that action, while warranted, proved costly to liquidity and may also have served to injure some of those with positions on, making them unable to transact. Then there is this bit of news released 11.05 by ICE.

Apparently RJO has taken over the clearing and administrative role for most remaining MF Global accounts. I can only hope that things improve, but for now keep your fingers crossed. The demise of MF Global will likely bring about more regulation and scrutiny. The safety of investor capital is paramount. But now it needs to be determined if MF Global is alone? Watching and waiting...

In a general sense the soft markets will be apt to follow dollar developments this coming week and Greece, as well as Europe will be the key. Sovereign debt will continue to hold the macro markets hostage to every new twist and turn. Speaking of twist, the Fed confirmed their Twist program to keep interest rates low is to continue. Will events in Europe settle enough that focus will shift back to the US? If so, aren't there significant debt issues here to face?

Regardless, for the near term, with so many things available to influence traders midst thin markets caution is prudent. The current environment has the propensity to fuel dramatic moves in either direction as the markets seem to suffer from a serious lack of liquidity. Keeping positions small and protecting trading capital are high on the list of appropriate approaches. Specifically, 220 to 219 has held (thus far) in KCZ. I continue to recommend owning puts and put spreads until KCZ closes over 236. Cocoa might be willing to try for higher values. Cotton has lost and demand for US cotton doesn't look as though it will improve anytime soon. Sugar prices still haven't escaped the gravity of 25 cents. In sum, it may be a good time to keep your hands in your pockets.

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

The Grains Review
For the week of November 7, 2011

By Matthew Pierce

Welcome back from a rather uneventful weekend in the global perspective. MF Global announced that they finished “bulk” transfers of positions to other firms with only MFG Canada still having any issues with segregated monies. There is a hold on transferred accounts until the end of business tomorrow but this is a relatively minor situation in the big picture. Looking at Greece and the EU traders see nothing exceptional this morning with the Prime Minister still threatening to resign if new measures are not approved. His confidence vote did not go well but he is still in office. Doesn’t seem to be the best time to threaten to leave, in my opinion. Another factor this morning is Italian debt which is moving back into focus as many accept that Greece default is a foregone conclusion. There are more G20 and European Union talks scheduled in the near future to combat a worsening of the situation. There are rumors that Berlusconi is going to resign but those are unconfirmed as I write. Shifting to weather, traders saw some rains hit the HRW region in central OK with a thin line moving NNE into SW Missouri. There were good amounts in the small coverage area with more expected today and into tomorrow in central KS and OK. Not much help seen for TX during the current system with the attached map showing an almost preternatural aversion of rain in that area looking as far as the 8-14 day models. The rest of the country will get a good drink while OK and TX are left out again. Weather in Brazil and Argentina is moderating with rains expected in Argentina Tuesday moving NW across much of the needy regions NW of Buenos Aires. Brazil saw weekend rains hit but less than expected. This is a minor concern with the La Nina effect seen as modest at best with a weakening pattern noted in ocean surface temps. The real weather concern right now revolves around Ukraine with reports that 30% of their winter grains crop could be lost due to drought and untimely freezes followed by extreme heat spells. The variability of temperatures are a growing concern. The demand side is a very quiet situation with this causing many to raise their ending stocks estimates for beans heading into this week’s WASDE report. All estimates are listed below. The lack of bean demand from China shows their slowing economy is causing ripples on world balance sheets.

The overnight session closed weaker in row crops but well off session lows with spreads favoring bulls in beans and bears in corn. Wheat showed relative strength led by KC with receipts starting to be a question heading into the period ahead of FND for December contracts. KWZ-H trading into 11.50-cents with more to go in my opinion. With protein scales continually showing strength for 12% or above I see little reason for any producer to let stocks on hand into the marketing stream. As long as the MWZ-MWH remains in a bull spread stance I would look for the front end KC spread to favor the bull.

Heading into the day session there is little today to look for concerning excitement. The Goldman roll officially begins which could favor bears in corn and wheat with the VSR in question with WZ-H trading at 27-cents. This is attributed more to positions shifts as a result of MF Global than any change on the fundamental side so look for a fairly dramatic shift to the bear side in the coming week. A move out to 40-cents is very possible. Outside of the Goldman roll we have WASDE on Wednesday so look for a quiet prereport trade today and tomorrow with spreads the focus of the trade. WASDE is generally expected to lower bean and corn yield with acreage an interesting factor to look at. I expect a small drop in harvested acreage for both possibly offering a catalyst for bulls if the macro situation agrees. As for today and tomorrow, expect a wait and see attitude with Europe and crude still in the driver’s seat until Wednesday.

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.