Grains Markets Review For The Third Week Of July 2011

Grains Markets Review For The Third Week Of July 2011

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Calls: Thursday saw a choppy downside trade with wheat getting hit a bit due to pressure from Ukraine and Aussie hitting the feed wheat market and the wheat market as a whole. In wheat traders saw the WZ 10.00 calls trade heavily with paper buying these cheaply covered on the day. Not sure the reason for the big move but with such a small delta play covered it looks like a long term volatility flyer. In corn traders saw a market that tried to stay positive but basis broke and intraday maps showed more rains hitting IA than were forecasted. This is questionable in that my farmers in IA said the radar showed plenty more rain than was actually falling on the ground. They were stating that atmospheric evaporation was eating into most of the falling rains...interesting. Another factor in corn today was the domestic bids for cash falling off with a processor in the SE putting corn back out after they realized they had a bit too much. This should be a short term phenomena with Ethanol and feeders in the Midwest still struggling to get coverage. This was more of a logistical issue than a real supply and demand scenario. In corn options traders saw a lot of action between Oct and Dec with plays made on both sides. Paper was buying the Oct, selling Dec looking for a gamma move while opposite paper was rolling forward and up looking for theta value. It will be a fun race to see who wins this. In beans traders saw a choppy two sided trade with the upside winning in a minor way at day's end. The excitement in beans was lacking anything thus the continual drop in front month volatility as they deflate unwarranted wing slopes. Beans are stuck and have no reason to move. Overall a day of consolidating with many still looking at weather for a burst that just is not coming...as of now.

The afternoon period saw only more heat across the central part of the Midwest with the aforementioned rains over IA dissipating as it moved over the Mississippi river and into S. WI. This system set all time highs in 66 cities with over 75 cities in the US peaking over 100 degrees. The heat is serious but fading moving into the weekend with only the upper 90s expected with a better chance of storms moving into the heart of next week. No major changes but a bit higher chance of rains should keep any upside momentum in check. Heading into the overnight session there was little excitement with most eyes on weather and the Euro. In Greece they are teetering on default with Fitch looking to call a default today but EU officials are working to give them another 155 billion rescue package as I write. This will impact the Euro all session. The agricultural trade was relatively quiet in a tight choppy range with a bit of downside pressure as we moved into the close. All markets closed on or near lows. It seems no one wants to step in front and catch the falling knife if midday weather maps offer more rains.

Heading into the day session markets still have a mess technically with corn, beans and wheat rolling over at the upper end of the range with basis offering a bit of defensive momentum as it remains on the defensive heading into the weekend. Corn basis remains a bit of a problem with eastern feed processors flush with corn and more coming. They continue to try to find alternative locals for these deliveries pulling basis lower for the first week in many. This will be absorbed by Ethanol and central US corn syrup processors once they get the logistics figured out. Today traders play with August options expiration with the SQ 1380 strike showing far greater interest than either the 1370 or 1390 making this the target with a meek 5,300 open. CQ is sitting between the 670 and 680 strikes with the 670 showing the best OI at 6,200. Not a big deal but just remember that traders normally gravitate to the strike that creates the biggest stir. WQ options are almost not worth mentioning but there are 1,700 open at the 680 strike.

The overall feeling today is one of apathy from bulls while bears remain too hesitant to step up and make any stand after the recent beating both sides have received. Look for choppy action with the downside the favored stance with many looking to macros for direction with a deal on the US debt ceiling talked about heavily.

Beans are called 3-4 Lower with a minor bear spread bias. Technicals are turning negative at the upper end of the range offering negative momentum along with weakening demand. Corn is called 2-3 Lower with indicators also rolling over. Less pull from domestic basis is hurting CU-CZ spread prospects. Wheat is called 2-4 Lower in CHI with no spread bias seen. 4-5 Lower with a mild bear spread bias and 4-5 Lower in Minny with a mild bear spread bias. Meal is called 2-3 dollars Lower following weakness in beans while bean oil is called 10-20 Higher helped by a higher palm oil market and crude maintaining a neutral bias.

News: Open Interest: Corn +6277; Beans +1604; Wheat -1102; Meal +4532; Bean oil -2083.

Looking at the above map, you see a mild increase in the expected rains about 5-7 days out with the end of July looking wetter today than at any point in the last week. Heat remains through the weekend then it moderates to a degree with most of the major growing areas looking for upper 80's with the SE growing region looking the hottest with temps expected in the 90"s 5 of the next 10 days. Rain events will focus on the northern growing regions with Des Moines looking at 3 rains events by month end while Cincinnati looking at 3 rain events. Minneapolis is looking at 4 rains evens showing the rains are focused north, not south. Moving into S. IL, MO, KS, AR and LA remain a problem with crop ratings in all those states expected to take another dive on Monday's report. Overall it is less threatening but not good yet for crops.

A trade delegation from China stated they intend to buy more soy oil and beans from Argentina without stating any specifics. Markets have heard and seen this many times without follow through so just another play by China in my opinion.

Argentinean bean expectations fell from last month from 49.9 MMT to 48.8 MMT due to adverse weather during their finishing period.

Iraq tenders for 100 TMT option origin wheat with this ending on July 30. Black Sea is a real possibility for this tender.

EU Wheat ended the week down .5% trading at 193.25 Euro's. The weekly decline was 3.3%. The market is caught between falling Russian values and concerns over late period rains hurting the French crop. The current French crop is estimates at 23 MMT versus 37 MMT in April.

Egypt stated they are happy with the quality of new crop Russian wheat making their tenders more and more likely to take Russian over US origination. This will pressure SRW even further with weakening basis and lower corn basis eating into demand prospects.

Chart: Soybeans - The trend looks to continue just as recent history has prescribed. The downside bias could pull the market back to the group of MAs sitting at or around $13.50. This is the first stopping point but if weather turns bearish look for this move to the bottom of the prescribed range at or around $13.00. Indicators support a negative stance heading into the weekend.

About the Author:
Matthew Pierce

Grains Guru for PitGuru.com. Get a unique viewpoint on grains futures trading with grain analyst Matt Pierce. Learn more about futures trading.



Article Originally Published On: http://www.articlesnatch.com


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