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Middle Tennessee | Quick note to jpartner: thanks for all the work with pitchforks and swings in recent months, I'm practicing some of it, but I'm sure not to your approval so I won't provide details!
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However inscrutable this week’s events in the grains may be, this time at least we can’t credit “logistics.” It seemed lately that logistics had taken onto itself the significance of a cosmic force, bringing things to transpiration which otherwise have no apparent origin. An example was the post-harvest firmness in soymeal spreads, basis, and flat price which bloodied more than it’s share of bears in recent weeks. That of course was back in the day—two weeks ago that is—when US and Canadian oil from the Plains was still competitive on the world market, and that was a tough good to outbid for a piece of our decrepit rail system.
High meal prices continued to confound, and exposed weakness in the logistics explanation as the causes for the logistics themselves began to alleviate. As November’s unseasonal frozen temperatures gave to warmer weather, and as global demand for US oil disappeared as fast as half the price of a barrel, sure enough freight offers emerged. But meal buyers—the suspects are commercial—fought off every technical threat, re-establishing $400+ a ton even as crushers eagerly went to work on the recent record soybean harvest, enjoying turning cheap soybeans into top-dollar meal. With expiration of the December meal contract today, the spot market wouldn’t maintain the $400 level, but the meal board is still soaring above support. And we can’t blame logistics, especially when those meal delivery points are presumably right on top of crusher locations, and there is a rally into delivery.
As feeders and exporters bought the meal market two weeks ago, the accompanying commercial buying of soybeans tossed a hand grenade toward the soybean The Head and Shoulders Formation. That made a clean break of the neckline, decapitating every small speculator in the soybean market (well almost all with a nod to cxr1 and Don Moffet). Soybeans did not close the week with great strength. At the moment, there are great crop conditions in South America, and the old crop spreads do not look like they did the last two bullish crop years. But with the streaking pace of export sales and shipments, and probably more strong crush data on the way, I’d buy sooner than sell (oooh, I came so close today).
If the corn price chart had a head and shoulders—and I don’t know if I’m qualified to say—it looked one of a hunchback perhaps. But the pattern was similar enough to soybeans two weeks ago to suggest weakness, and again similar to the soybeans, commercial buyers carved out a firm support level. This was happening right as oil and gas were collapsing, with ethanol prices somehow impervious to the energy complex melting down. Over the last two weeks, that has been changing. According to USDA data, spot ethanol prices have taken 20% hits week-on-week (but still a lot more expensive than gasoline, and gaining), although declines have not yet reflected the thinly-traded futures board.
As support was tested in corn the first week in December, CFTC reports show Managed Money was selling as commercials covered shorts (in soybeans, the commercials were adding long positions). This week however, as the ethanol weakness has set in, Managed Money and the commercials reversed buyer-seller roles, with the speculators pushing corn to new highs. Managed Money is again uber-long corn, right as ethanol margins may be in very serious trouble. Until this week, feeders and ethanol producers had been more than able to pick up any slack from the export sector, with cash bulls demanding carry. Now, just as questions regarding the ethanol outlook surface, the hedge funds are charging long, eyeing the gap another 18 cents upward, and there are rumors that China may be returning to the US corn and DDG markets after several months of absence. For now though, export basis is weak, and I suspect China will buy US corn soon—but not above $4.00.
I got stopped out at $3.97, and with USDA’s final word on old crop acreage being published Monday, I’ll probably get stopped out at $4.14. But it’s not last week, ethanol is cheaper every day, and the funds are longer, while commercials are leaning on the sell button. Shorting nearby corn for $4.20 has got to be the nillest of no-brainers since buying it at $3.15 (you don’t have to remind me, I missed that one).
The wheat market also had a very interesting week, with shorts in December Chicago wheat (including yours truly last week) feeling the squeeze. Unlike Chicago wheat, the KC complex got tagged with hundreds of deliveries, which then again perfunctorily got recycled between longs. That, along with announcements squelching expectations of South American demand, creamed the KC-Chicago spread, which I recently very luckily entered at 51 cents (very near the swing) and exited at 68 (very near the top). We’re below 30 cents now, and I’m itching to try again near a quarter. But I must say, it is tough to sell the Chicago wheat, with commercials in Toledo seemingly sucking up every bushel they can find throughout the Great Lakes, and with resistance from here not easy to make out. I should point out, it is to a large degree Ukraine and Russia which set the floor for the global wheat export market, and at the moment, we have macroeconomic collapse, war, and a very serious drought with no end in sight. Today, rumors regarding issues out of the Ukraine propelled corn to new highs, and you know how I perceive that by this point hopefully. However, disruptions of export supply out are a legitimate story that can turn the wheat market fast.
Edited by LongKC 12/13/2014 12:45
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That was the worst title ever...so I'm changing it
