|
| The past couple of weeks I have related that in the month of December the market is vulnerable to profit-taking, book-squaring, the holiday atmosphere & etc. A lot of you already know this.
In my experience, if a market trades higher & then breaks back down thru the opening range, it is not a good sign, particularly, in my experience, if it happens on a Wednesday or Friday. If you are a trader, you want to be gone. I am not an in & out trader.
I do not know if we have seen the top of these markets. I do know:
The grain markets are, and have been, overbought and due for a price correction. Price reactions which could be of breath-taking proportion. This should not be a surprise.
Gold, crude oil & grains & many other markets have been bought by index funds and speculators as a hedge against the dollar. The dollar has bottomed, at least temporarily making these folks vulnerable.
The wheat market is the tightest in 60 years. Particularly for HRW, SRW & White.
The soybean market is tight and experiencing unexpected demand.
We witness a battle for acres and this may well continue next year until some wheat or soybean inventories are replenished.
In this atmosphere of historic prices export countries are anxious to sell before Arg. & USA new crop. This type of action should be expected.
However, at this time, there are concerns about Argentina and USA Winter Acreage is yet an unknown.
Typically, looking at a 15-year pattern, KC wheat can see a high in May; test it in October and January. Usually see the low in July, DECEMBER and often in March. There are two seasonal plays normally considered at this time of the year: long KC/short Chicago & long KCJuly/Short KCMarch. However, thus far all of these markets have been somewhat contra-seasonal in nature.
Just ahead is a stocks report, pig crop report, cattle inventory & all will have some limited affect on the grain markets.
The dollar has great impact on USA export transactions. However, the cross-rate to the Euro was 1.33 a year ago, 1.36 in July & peaked a couple of weeks ago at 1.50 (temporarily) & currently about 1.44. In reality, the dollar has been in a downward cycle for a few years.
If an importer still needs wheat, and or soybeans, and have not yet made purchases, what else is there to buy? You don’t make much bread or pasta out of corn & corn is not a protein source.
I don’t know:
Grain exports/imports are generally settled with Letters of Credit. If CIF when the boat is stowed & trimmed & if FOB, at the destination. I am going to speculate, any importer of any intelligence will have purchased dollars in the amount equal to or greater than their estimated needs.
How many folks bought dollars in the past weeks to cover more than one crop season?
How much product do the other exporting countries have left to sell?
The future Argentine weather.
The future Brazilian weather.
Or, is there someone lying in the weeds who yet needs product?
Future actions of the Fed. Inflation concerns may mean an end to interest rate cuts & they have to create some ‘back-door’ program; one being to encourage other countries to lower their interest rates.
If the pig crop report reflects reduced farrowing intentions & a lower breeding herd, corn and meal will be impacted; if the cattle inventory suggests liquidation, corn and meal will be impacted. But, not much. The big one will be the upcoming stocks in all positions report.
I am not trying to bull these markets. I only have one march wheat contract left. I still like long nov beans/short dec corn & think new crop beans need buying on any EXTREME BREAK in price.
We all have to ‘kill our own snakes’ depending upon our own circumstances and just how much mental anguish we can handle. Additionally, at these prices, and if you are not selling product on a scale up….then you are dealing in pure speculation…pretty much like me. But, that is everyone’s right. If you are a producer and hedged all of the time at your current operating cost level, inflation can eat you alive. When speculating, it is essential to prepare for the unexpected event.
| |
|
Some Thoughts.
