The Grains Review For the Week of March 26, 2012

Discussion in 'Commodity Futures' started by pitgurufk, Mar 26, 2012.

  1. 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 ago…Obviously 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 doesn’t 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 doesn’t 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 today’s 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.