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 Thursday’s 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 USDA’s 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 correct…which is a long shot. Their ending stocks numbers are in question as well with the current 58 MMT corn reserve number questioned by almost everyone…even 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 doesn’t 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 what’s 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.
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.