The Grains Review For the Week of March 5, 2012

The Grains Review For the week of March 12, 2012

Friday saw a very messy session with the WASDE report offering nothing bullish allowing the trade to open flat versus Thursdays settle. Beans tried the downside briefly before news of Chinese buying corn hit the wires. This blew up all three markets even though the talk was completely unconfirmed. No one has seen anything from the USDA about corn or bean purchases. JCI Intelligence stated Chinese interest in option origin corn is for 2-3 cargos which is between 110-165 TMT, not the 600-800 TMT talked about on Friday. Still nothing seen on paper but this is the talk. The reason for the talk is the size of the 12/13 corn crop there. The government stands by their 192 MMT estimate. CNGOIC has a 185 MMT estimate while JCI has a 168 MMT estimate. Glad to see the margin of error over there is wider that the USDAs right now. No one knows reality but there is one unavoidable reality in China. They have 1.3 billion people and millions are moving away from agrarian to urban lifestyles. This puts more stress on government food stocks which puts pressure on crop estimates to be more correctwhich is a long shot. Their ending stocks numbers are in question as well with the current 58 MMT corn reserve number questioned by almost everyoneeven bears like myself.

Another bearish factor on Friday that was ignored was Informa acreage coming in at 95.513 million, bean at 75.128 and wheat at 57.745 million. WOW, I guess we will literally plant from horizon to horizon. We will also plant in between highways, along drive ways and every other plot of land possible. These numbers are almost too big to be believed but it is noted that the trade continues to ignore all bearish information leaning on bullish sentiment and momentum instead of hard facts.

No matter what happens on the fundamental side, no matter what happens on the technical side, no matter what happens with crude and the USD if the market wants to move higher, it will obviously move higher. The sentiment remains bullish in spite of a great start to the domestic crop and improving outlooks for the South American crop. The sentiment ignores ProAgra stating the Ukraine crop is 45.66 MMT versus their previous estimate of 42.64 MMT. Their corn crop is estimated at 21.3 MMT versus 17.7 MMT. I guess the market doesnt want to see this bearish impact either. Even if Argentina is estimated at 22 MMT, world stocks are ample with both Brazil and Argentina hitting the world export market as I write. I remain on the bearish side even more today than I was on Friday. As I see it, this ship is going to sink with a vicious day of reckoning on the horizon. There are too many in the trade without any knowledge of whats going on. There are too many riding the momentum wave that when dissipated will leave a vacuum under the trade with no one willing to step up and buy it.

The overnight session was choppy leaving beans, corn and wheat in the middle of their ranges. KC popped a bit into the close leaving KWN-WN right around 39-cents. This is still value in spite of better weather in the HRW region expected in the next 10-days. The SRW crop is amazing from early reports making the spread interesting at the current stagnant level. Bean oil lost to meal in what remains a very choppy situation.

Heading into the day session to start the week there is limited momentum or direction. Crude is getting dismantled this morning trading at session lows as I write but this is a minimal impact if recent trends stay true. The markets are teetering but there is nothing to say they will fold today or this week. It all depends on China, sentiment not reality, crude values coupled to the Euro, South American harvest weather, North American planting weather and Chinese weather in their North Eastern planting region. We have minimal real data this week with export inspection sure to be of interest this morning at 10:30 CST, NOPA is out on Wednesday then export sales come out on Thursday. On the economic side we have the FOMC tomorrow with retail sales, jobless claims Thursday and the PPI, CPI on Friday. It will start choppy with a bearish underbelly exposed but no one seems poised for the killing blow. I remain bearish but I am licking many wounds right now.
Matthew Pierce
Disclaimer: Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.
The Grains Review
Special Prospective Plantings Forecast Giveaway

For the week of March 26, 2012

By Matthew Pierce

Coming back from the weekend, bullish sentiment in beans remains the biggest story. Spreads continue to point higher with SN-X moving over 50-cents overnight. CN-Z remains stuck in the middle of the established range offering mixed signals to corn longs. Bean longs continue to impress even though they lack export demand or any new crop weather threat. The money flow issue carries beans. From Friday, another 13,900 jumped on the bullish bean band wagon. I thought this wagon was overbought 2 weeks agoObviously I was wrong. Every CTA, alternative investment advisor and every day trader appears to be jumping on the momentum trade. One major supportive factor for beans is the Dalian. Overnight beans were up 23 while corn was 4 lower. Beans are approaching the cash equivalent of $20.00 with most of this due to vegetable oil demand which in turn helps bean oil and palm oil prices.

A trade to watch closely is SX/CZ. The current 2.40 ratio as planting commences puts many producers back into the acreage battle. Corn is still more attractive but beans are gaining. Farm Futures Magazine estimates corn acreage at 95.1 million and beans at 76 million. That is about 400K higher than the average guess for both heading into the acreage report. Old crop bean corn spreads look to reach for contract highs at $7.52 after blowing through the $7.00 resistance. The market lacks logic but a trade doesnt need logic to crush you if, like me, you remain short term bearish looking for a major correction. After the first lower weekly close in 6-weeks, I felt traders would see profit taking into the March 30th report. Instead, the overnight set a new range high at $13.7950 with this the first battle ground today. There seems to be growing sentiment for a test of $14.00 heading into the report whether or not it is warranted. There is no real demand change though beans off the PNW are bid due to weather logistical problems.

Beans are the upside momentum while grains falter due to fading demand and overbought short term technicals. Corn and wheat are relative drags on momentum though corn spreads are speaking bullish. CK-Z broke and closed the overnight above 90 for some reason. No fresh demand for corn doesnt stop the old crop buying though this is weaker than beans by a large margin. Flat price corn remains stuck in the middle of the established range after holding the 100-day late last week. The 200-day offers resistance to any rally with nothing on the fundamental front looking to impact the market into the report. Weather wise, early planted corn will get a minor scare due to low temps this week but nothing severe enough to cause problems. Talking to producers over the weekend, they are either done with field work waiting to seed or are already seeded waiting for emergence. Very few fields are untilled in central IL. It remains very early but the 30-day temp models promote a very fast pace of planting. Watch CU-Z this week as early planted acreage looks to hedge against the crazy inversion. I think the spread is the weakest on the board.

Wheat popped again on Friday due to short covering above the 100-day MA in May. Great weather for the HRW and SRW crops should pressure July and deferred contracts in both. The weakness in KWN-WN is an opportunity. The spread is currently at the range low offering a chance to get long KC versus CHI. This spread has been range bound and looks to remain that way for some time. Weakness in Minny wheat pulls the trade right back to the 100-day MA with planting still weeks away. Wheat remains a messy situation with bearish fundamentals countered by the only fund short remaining on the floor.

Looking at todays trade, the path of least resistance in beans is higher though I still have to wonder how. Corn and wheat will trade both sides looking for momentum from a weakening USD. The energy markets are mixed to positive offering modest momentum but it all comes down to beans. If the money flow parade continues there is nothing I see stopping a test of $14.00. Corn and wheat will likely follow suit but to a lesser degree with nothing on the fundamental side offering support this morning with the trade seemingly waiting for the USDA report out on Friday morning at 7:30 CST. I will have the estimates out early this week along with banter from the floor - watch for that in the Daily Grain Report.

Matthew Pierce

Disclaimer: Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.
The Grains Review For the Week of April 2, 2012

On Friday traders saw a wild session. Old crop corn hit and closed limit higher in May alone. Old/new corn spreads blow up, and old/new bean spreads weakened on the rally. New crop beans gained on low acreage expectations, wheat gained on short covering and meal spreads spoke bearish. What a mess. Big shifts due to month end were seen with the bean spreads most bearish along with old crop meal. The biggest of note is the all the sudden bearish K/X bean spread. This spread topped around 54-cents and is now at 41. With the impending roll there is minimal interest in loading up in the front month. Remember that if this spread were truly good K/N would not be trading at a carry. I say this is money flow and now with acreage a question in new crop all the incentive lies with November over May. I feel this spread could easily trade right back into even money or a carry over the next 3 weeks offering great potential for bear spreaders.

On the other hand, traders saw K/Z and N/Z trader well wider as new crop acreage is all the sudden bearish. Lets examine this: New crop acreage is thought to be 95.9 million acres with a new crop beans corn ratio at 2.54interesting. There are way too many acres in the northern regions producers have not put nitrogen on. This means they can shift part of their all the sudden strong Minneapolis wheat to the fertilized land and plant more beans. As cash beans approach $14.00 all the potential lies with beans, not corn in the north. We will still plant plenty of corn but 96 million is too hopeful. Think closer to 95 million on the June acreage report. This is a shift to both oil seeds and spring wheat if the strength remains.

The interesting thing of note coming out of Friday was open interest. Big gains in corn and beans while only bean oil saw a drop. Looking into beans, a jump of 31,204 raises an eyebrow. If Friday was supposed to see profit taking due to month end I do not see it. Another concept to consider is index fund reweighting. If a fund has 4% of their portfolio allocated to beans, that percentage is now 5.2% following the 80-cent rally. Bloomberg put out a story stating funds trimmed their positions in commodities by 1.8% to end March but once again open interest does not agree. Corn open interest jumped 17K and meal jumped 5K. Significant gains in the face of questionable fundamentals. If the pull in meal is real, where is the cash bid? Remember that H/K meal left around 4-dollars to a carry. K/N will likely trend there quickly as soon as these funds roll which is over the next couple weeks.

Looking at the week ahead, markets have a gap in information with the WASDE report due out on April 11th. They do get the first look at crop progress today. Winter wheat is the focus with high expectations for ratings. Corn may show planting but this report is a preliminary number so do not expect anything aggressive. Outside of that look for pathetic export inspections for corn today with beans far better. Export sales on Thursday should show weak corn and hefty beans once again. The trend continues and shows no sign of abating with Brazilian basis firm. The market is closed on Friday for Good Friday so a shortened week condenses the activity.

As for today, a higher trade is expected but this is fading as markets approach the opening. Crude and the Euro are fading in spite of strong Chinese economic data. Negative European PMI data is the attributed cause for the weakness there. Old crop corn will likely win versus new crop but do not get bearish CZ corn, its a trap. Bear spreads should dominate as they approach the close due to money flow but look to try to take advantage of any pop in inversions. Overall it will be another exciting trade with opportunity abounding for risk tolerant traders.

Matthew Pierce

Disclaimer: Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.
A Market Review and Opinion Report For April 9, 2012

Thursday saw another round of excited buying in corn and beans with wheat actually not losing ground. Old/New bean spreads exploded, corn spreads folded and front end meal spreads bent bearish. It was another messy session with a strong upside bias noted.

The bean strength comes from Chinese markets more than fresh demand. Export sales were solid but so is the planting start here in the US. The delta is basically done, IL corn could be 30% this week and MO is looking unstoppable. Dryness in the northern plains is the only new crop issue of note.

What is more important right now is tomorrows WASDE report. Two key factors to look at. old crop stocks in corn and beans and South American production. Old crop stocks are expected to drop but traders expected that last year as well.

Corn old crop stocks average guess 721 million. March estimate 801 million
Bean old crop stocks average guess 246 million. March estimate 275 million
Wheat is expected to drop but only marginally on higher exports. The average guess is 792 million versus 825 in March.

World ending stocks are expected lower across the board with wheat down 1 MMT, with corn and beans down 2 MMT. The drop in corn and beans are due to expected drops in Argentine corn and Argentine beans and Brazilian beans.

This report has the opportunity to set the market afire or really squash bull spread hopes. If the USDA is conservative and leaves old crop corn stocks unchanged old new spreads will likely collapse as length looks to exit. The USDA is not here to scare anyone and spreads are already showing weakness. CN-Z closed at 102 on Friday showing weakness in spite of old new bean spread strength. This is obviously not an across the board money move. Instead this may be a profit taking move. Hard to argue with old crop bean stocks lower right now due to Chinese demand but this would be an aggressive move with only the trend exploding, not the real numbers. We are at or just above last years bean export pace. It would not be in the best interests of the USDA to lower stocks here allowing potential for old crop inversions to blow up.

The reports will set the obvious tone for the rest of the week along with weakening macro data. Overnight China stated their CPI jumped to 3.2% from the Feb low. Food inflation was calculated at 7.5% with pork and vegetable oil to blame. As for US data, wait until the end of the week for PPI on Thursday and CPI on Friday. Outside WASDE traders get the second look at crop progress today with corn planting and winter wheat conditions of biggest note. Look for corn plantings to impress again.

Matthew Pierce

Disclaimer: Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.
The Grains Review For the Week of April 16, 2012

Coming back from the weekend I see negative macro factors adding momentum to bearish weekend weather. The trade is fading due to good weekend rains in MN, IA and throughout the Midwest and a lack of fresh demand from China or anyone else for that matter. Weak crude markets and a strong USD make many weak longs sweat to start the week. Its a rather slow news day and week ahead with Chinese weather, Saudi claims to lower oil prices and Spanish bond sales biggest international factors. Domestically traders have new home starts on Weds, NOPA today and crop progress to set the early tone. Early talk has corn 25-30% planted versus 7% on average. This quick pace should stall this week due to the recent excessive rains in areas but this is not a bullish factor. We are well ahead of pace and will still effectively have the corn crop in the ground by May 1st. Domestic weather is wet across much of the Midwest with a minor, and I mean minor frost threat in the OH river tonight and tomorrow night.

From a trading perspective, the trade looks and feels very tired. There is no food for bulls but spreads still offer a minor bullish impact. With all the recent rains, new crop corn should feel more pressure than old crop after the recent fall in CN-Z. The 80-cent level held offering reversal momentum but this is dependent on continued demand. With the roll period officially over there is no real movement expected from the money flow side midmonth. As discussed on the 2012 Grain Forecast report out last week, another opportunity is in beans.

Looking to today, its another downside day with a possible flush out in corn and beans due to negative technicals. CK traded back under the 100-day MA on Friday with only the range low at $6.00 offering any support. Beans appear toppy but as we have seen, this market does not want to give up. The 200K long will be watching closely looking to exit at the first sign of overt weakness. SK-N sits at 3.5 to the carry starting the week with this a major indicator of front end weakness. I expect this to widen all week with a possible close on Friday closer to 8-cents. Wheat may try to show relative strength versus corn and beans due to the 88K fund short and relationship values.

The tone for the week is lower and should remain so as long as weather doesnt turn too cold and the Saudis are really going to increase production. The world feels a bit overbought with macros, weather and weak demand all helping bear rule for a while.

Matthew Pierce

Disclaimer: Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.
The Grains Review For the Week of April 23, 2012

Coming back from the weekend markets have a calmer opening as compared with Fridays explosion to the upside in beans. The explosion, as I put out on Twitter, was completely based on rumors of fresh Chinese demand for beans off the PNW. Though we have seen only partial confirmation this morning, basis does support the talk with the western half of the US higher than we were on Friday morning. Corn and wheat lost dramatically to beans due to a lack of fresh demand rumors or any food for the bull in those commodities.

Spreads were supported in beans while bearish in wheat and corn. All spreads are active but lets focus on CU-Z. This spread has recently collapsed from 37.5 inverse to a 7.5 inverse. Full carry for this spread is around 16-cents offering another 20-cents or so movement to the bear side. Traders need to consider that all the early planted corn will be delivered against the Sep contract. Informa made this known on Friday stating 1 billion bushels of corn will be deliverable; I feel this is dramatically understating the issue. If 60% of IL and 50% of MO are both planted and emerged by May 1st, using a 110 day growing cycle, the dry down date is give or take August 18th. This is not even considering TN, KY, KS, OK, TX and all the other southern states with corn acreage. Simply put, I think the trend is your friend here and the bear side should win this week.

On the flip side of the subdued corn bullishness is the amazingly long position in meal offering downside momentum. As expected, SMK-N went out past $4.00 then traded back under overnight on more money flow issues. Meal is not a bull. It is simply benefiting from the strength in beans which is in turn slowing crush. Meal demand should slacken off as other competing proteins move into rations. $400.00 meal makes many feeders balk at buying especially with massive inverses and a record long fund position. All that being said, meal will have a hard time falling until beans stall. Meal is a child of beans so look for extra weakness in meal if and when beans finally break which Im sure they will do in the next 60-days. Its not a revelation that I am bearish beans at current levels but the market is simply overextended. Positions wise, ratio wise and acreage wise, beans and meal are not in the right place. This is not to say the rally will not continue. Positioning against a money flow rally has hurt myself and many others. If you want to get bearish either, look at buying extremely cheap skewed puts establishing your risk.

Looking to today, beans are modestly bearish with spreads backing up the weaker tone. Corn and wheat are modestly bullish with spreads supporting that tone. KWN looks to gain a bit of recently lost ground to CHI with the spread sitting at a shockingly tight 14-cents. Minny will lag behind both as spring plantings roll along. Meal will be the weakest commodity on the floor while bean oil tries to hold ground in oilshare. Look for a relatively quiet session to start with the downside the path of least resistance even for corn. Crude is lower and the USD is higher which supports a bearish stance for the day. Watch spreads for best action and momentum with CU-Z sure to give up more by days end and even more by weeks end.

Matthew Pierce

Disclaimer: Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.

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