The Grains Review
For the week of August 29, 2011
By Pitguru.com
Coming back from the weekend ag markets have nothing but positive momentum heading into the end of the month with yield problems persisting and demand expansion talked about. Reports from Bloomberg, Economist and CNBC all featured the corn rally with talk of weather issues in the finishing portion of the development season. Historically this has signaled a top but with ProFarmer pegging US corn yield at 147.9 there is a legitimate reason for concern. If this number comes to be true we will have a draw of 1 billion on US corn stocks. With this taken into consideration, how can we defend the current rate of Ethanol usage? At what point will Ethanol producers run out of corn with the input at $8.00 and crude at only $85.00? I understand the blending rate is a law but in times of great concern, a presidential mandate can suspend or real the law with a deferred congressional approval. I’m not saying this is going to happen here because the marketplace will take care of this well ahead of this situation. Feeders are taking a bath and exporters are seeing demand dry up. This will likely tank basis on the rally into harvest with even a small crop sure to put the brakes on this rally. This is why the market does not make highs in August. Last week traders saw a solid rally after a chop upside early in the week with Friday’s move the surprise of the week. We saw all markets explode to the upside after a quiet opening with stops hit in beans and wheat. This predated the ProFarmer results which came out at 147.9 and 41.8 bu/acre. Both numbers were constructive but beans are actually above the USDA. This did not impact the trade with momentum from corn helping break above range highs. The rally was also induced by CU option players looking to peg the highest OI strike at $7.50 which they did admirably. Beans and wheat blew above their respective high strikes at $14 and %7 respectively. Markets saw little from option expiration with exercises seeing people lean long corn and they got paid off overnight.
Heading into the week ahead markets have continued weather issues plaguing the central US with no rain expected to break the dry spell dominating everywhere south of I-80 into the end of August. Hurricane Irene will putter out in Canada pulling any cool Canadian storm forming air out of the Midwest. This will add more stress to the late developing corn and beans crops all along the very necessary production belt. KS and OK are getting a drink today and tomorrow with nothing after this through the 5th of Sep. Markets now have to deal with the very legitimate problem of not planting an HRW crop in major areas of TX, OK and KS. The drought monitor paints a disastrous picture for producers in those areas. The trade needs to deal with crop progress this afternoon which is the only other report outside of export sales on Friday. Lots of macro information with the Chicago PMI out on Wed which coincided with month end. This should be interesting after the massive rally over the past 30 days. Overall it will be a week led by further yield talk, macro factors, political upheaval in Japan and EU banking issues. All in all another perfect week to rally commodities with inflation discussions jumping into overdrive. Look to the upside early in the week with month end sure to bring in profit taking but will it be enough to derail the upside momentum?
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.