Grains Trading Review on March 25, 2011

Calls: On Thursday traders saw a very volatile session with rumors and weather dictating the trade. Early weakness was shrugged off in wheat when the trade realized there was no one to sell anything with funds already short. Commercial interest is growing with consensus opinions about the HRW regions here in the US tanking by the minute. This coupled to demand from China for wheat as seen on export sales helped wheat stage the early rally that helped the rest of the floor rebound. Corn was the second to rally on rumors that China is inking a deal to buy US corn. Brazilian corn is dramatically cheaper than the US on an FOB basis then add the Baltic freight advantage from N. Brazil and US corn is a distant second in price. China will buy US corn if there is some under the table political advantage, think Yuan versus the USD. The old crop rumors sparked the spread with all commercial ownership seen in the deferreds with minimal in the front to cover any massive purchase. Here is my theory; this is Japan. Think of what a move like this would signal to their populace. This says they have a secure food source, stability in food prices and security in their future ability to produce their own meat stuffs. There is no talk of Chinese demand for more beans in spite of the hefty shipments they lined up on the export sales report. The SN-SX is hampered by fading domestic crush demand as seen on the census report yesterday morning. This coupled to Chinese crush margins currently negative points to a further destruction of the inverse in spite of my personal bullish stance. The movement in old crop corn today should help widen this on reversals of positions seen this week. The spread could easily move into even money heading into the report on expectation of lower domestic crush equating to an increase of 30-50 million bushels on the carryout but this is a long shot in my view. This will ease the front end pull seen for US beans if coupled with a better forecast for ports in Brazil following torrential rains. Heading into the afternoon session there was little outside continued chatter about possible Chinese bean and corn demand with a supposed announcement due out during the day session today. The overnight session was higher without real drama as the CN-CZ spread continues to widen back out. Weather woes in the EU wheat areas popped that market heading into the weekend with world weather turning sketchy again. Heading into the day session there remains talk of Chinese demand but nothing has surfaced as of yet. Watch Twitter all day for most up to date information. I will look to the upside with weather affecting supply security and demand from the world's largest consumer helping consumption. I think technically the market looks great following yesterday's reversal so look for more money to flood into the market ahead of the report.

Beans are 6-8 Higher with the SN-SX spread flat overnight. The trade looks to move higher following corn fighting to plant at least 75 million acres. The 50-day MA is the bullish target sitting at 1391. Corn is called 20 Higher old crop with new crop 10 higher. The range high at 744.25 is not in reach for normal minded folks today with much of this likely priced in yesterday. Wheat is called 15 Higher gaining momentum above the 200-day MA with the 100-day MA now in bulls' sights. The 100-day sitting at 797 is not in reach today but with funds short and weather destroying the HRW crop there is no reason traders cannot see this shortly, in my opinion. Meal is called Flat-1 dollar higher losing to bean oil which is called 30-40 Higher heading into the weekend. Strength in beans will help meal get back above the 100-day MA sitting above at 362.00.

News: Open interest shifted as follows: Corn -3120, Beans +2401, Wheat +2364, Meal -367 and Oil +373. Little changes again showing that the volume flow remains slow in spite of growing upside momentum.

Gulf corn basis is up 6-7-cents in two days backing up the demand ideas.

The 6-10 day forecast offers two sides of a coin. First the US has temps expected in the mid 20's tonight through Sunday with rain/winter mix expected. This is a good and bad situation. Freezing rain will damage the crop even more if it hits but rain is so sorely needed the risk may be worth it for farmers. After this system I expect many farmers to decide if the crop is worth saving. Once through the storm front on Tuesday the entire western belt looks dry and warm moving into April. This system is the only expected moisture for the next 2 weeks so amounts and coverage will be watched closely.

April options expiration today with the CJ 700 strike showing greatest interest.

Palm oil went into the weekend down 9 Ringgits.

Argentinean weather looks cooler with wetness a mild concern in central and northern regions as harvest commences. Brazil remains wet in the north central regions but this is drying out as next week progresses.

LATE SALES: 1.25 MMT of corn sold to UNKNOWN. 1.0 MMT for old crop and 250 TMT for new crop. All signs point to China but I still do not understand why they are paying up so much for U.S. corn over Argentina and Brazil. I will look into the political and other economic factors throughout the day.

MACROS: Are mixed to modestly bearish with softs mixed, crude lower and precious metals slightly lower. The Euro is weak but easily holding $1.41.

Gold is trading 1.70 Lower sitting at 1,433.20.
Crude is trading .25 Lower sitting at 105.35 as of 8:30 CST.
The Euro is .0037 Lower sitting at 1.4128.
The Yen is .13 Lower sitting at 81.11.
July Cotton is trading 1.08 Higher sitting at 201.57.
July Sugar is trading .11 Lower sitting at 25.20.

Daily Wisdom: The art of living is more like wrestling than dancing. - Marcus Aurelius

Resource:
Matthew Pierce
Grains Guru of Pitguru - Learn more about forex trading & futures trading