By Matthew Pierce

Coming back from the weekend markets have a back and fill from Friday's strange action to the upside in corn and beans. On Friday corn rallied to the CQ 690 strike in spite of higher chances of rain that did materialize over the weekend. At that strike traders saw 446 calls exercised and 1725 puts...obviously the puts were correct in hindsight. The overall strength in the market was on low volume as many felt it was unwarranted due to midday maps and rains hitting LaSalle Street here in CHI. The old adage was, if it's raining on LaSalle it's raining everywhere. In beans traders saw a small rally on Friday with the market gravitating to the highest strike for options expiration there which is what was expected versus corn which jumped a strike. I saw 954 of the SQ 1380c exercised and 1008 of the puts exercised, obviously not a major difference with the bean market remaining in a tight range offering little incentive to trade above these levels. The lack of excitement was enhanced in beans with the CME lowering both initial and maintenance margins for beans and meal showing there is little reason to trade these from a long volatility standpoint in spite of the relatively low levels as compared with corn. On paper being long bean vol and short corn vol is a great idea, but like communism in practice it does not work. Corn is moving and with weather a much larger factor for the corn trade right now I agree with the lower margins and apathetic approach to bean and meal volatility. In wheat traders saw an upside move but nothing exciting once again. The market is stuck with fund shorts helping the bullish side while Russian pressure on feed wheat values is helping bears. I saw the MWU-MWZ spread taper the carry a bit with the battle looming large as the spring wheat tour starts this week with many feeling the crop is in far worse shape than the USDA is admitting. This will be interesting to see as results leak out late this week.

The weekend saw record rains in N. IL with over 7" hitting CHI and surrounding areas moving into N. IN and N. OH. More than 2" hit WI, MN, OH, and many areas in IA, IL and IN alleviating early stress talk but heat remains a problem. The areas rain missed are TX, KS, SD, MI, NE and N. LA. Overnight rains hit AR, N. IL (again) MS, WI and SE Nebraska. This was much bigger than expected which is a major reason traders saw a downside move in all commodities last night. Another reason for the downdraft is pressure on crude and the Euro as more debt concerns come to the table. Focusing on debt, the US debt ceiling due date is August 2. The ever intelligent Republicans and Democrats have stopped "working" together and are now working intraparty to present the president with a deal. China seems chill with the current situation stating a deal is expected by the deadline. This factor is stalling currency markets with the Euro offering a mild bearish undertone overnight. The overnight session was lower but surprisingly firm when it was all said and done following a good pull to the downside early there was little interest in pushing this market to fresh lows. This is a potentially bullish factor in the big picture with crop progress expected to be bullish this afternoon with the trade looking for beans to crop 1-2% while corn is looking at a 2-4% drop.

Heading into the day session and looking at the week ahead, there is little fresh information outside of macros, weather and the impending month end on Friday. Markets have the aforementioned crop progress today then export sales on Thursday. Outside of that traders have to watch weather closely with another rain system looking to move across the Midwest on Wednesday through Thursday. This could offer many a reason to sell heading into month end with many technical factors looking bearish. This coupled to a back and fill play in domestic basis and the trade has no reason to break out in either direction to start the week. Corn is the leading factor this week so watch this market for best direction and momentum with macros and weather the biggest impacts ending the erratic month of July.

Source: www.Pitguru.com