Market Monitor

By Marlin Clark

Party getting old in Chicago

All those old clichés come to mind. Stick a fork in it—it's done! The party's over! And a reminder of the ugliest graffiti from Saigon, circa 1974: "Would the last American in Vietnam please turn out the light at the end of the tunnel!"

I think of those sayings as I study the grain charts this morning. Prices have turned, not just sharply lower, but ugly lower. Maybe, butt-ugly lower! It looks like the big move is over, with big losses in the last few days and weeks.

I am reminded of one of the strong axioms of this business: the top is in when everyone thinks prices have to go higher. That was the mood only a few days ago. All the talk was about how tight the carryout in corn was getting. Traders were spooked that we could have a spotty spring, take a little off the corn crop, and make new highs in corn by dollars, not cents.

So, what has changed? All the outside markets seemed to be helping grain prices. The weak dollar, the high crude price, the Libyan situation were all cited as reasons for high prices. To my mind nothing has changed there. We have just stopped getting new news to feed the bull.

Now the focus of the world is on Japan and the catastrophe there. 10,000 people may be dead, and two nuclear reactors are still threatening to melt down. A million people are homeless, and the best we can say is that the Japanese are used to handling these problems and at least it is not as bad as the Indonesian tsunami. No, it is not. Maybe 200,000 died in that one.

And, we now try to decide if the Japanese mess should effect prices. I don't know. I don't know why we went up so high and down so hard, either. I am just trying to rationalize it after the fact.

Let's look at the actual numbers. The May corn futures dropped 17-1/4 cents last night, going into Tuesday morning. We closed on the low, at 6.48. That is most of a dollar below the high made three weeks ago. Of course, that high was a fluke. We made a low the same day, 40 cents off the high of 7.44-1/4.

At the same time the soybeans were crashing, but have actually been better the last two days. May bean futures were at 14.67-1/2 in early February. In two weeks they dropped to 12.96-1/4. The next two weeks took them back to 14.24-1/2. Now we hada Friday low of 13.05. So, we were down $1.71, then up $1.28, then down $1.19. That pretty well defines volatility.

The wheat market has been easier to chart, but more confusing. All the talk has been about tight world-wide supply. So, of course we crash. May wheat futures are down $2.31-1/4 as of this morning, to 6.94/1/4. Someone has to explain that one to me. Did we just get too high, whatever the supply?

Still, I keep listening for the sound of my all-time favorite market song. That would be, "It's Over!" I don't hear it, and I am not totally convince until I do. What if the specs were right, before they gave up for now? What if we have some spring problems? Maybe, from this height, it will just bring the new crop up to even with the old.

Maybe corn futures are losing their convergence with futures, like wheat did a couple of years ago. A lot of questions, and not too many answers.

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.

Market Monitor

By Marlin Clark

Rally returns with a life of its own

Even one of the strongest of chart signals did not permanently break the corn rally last week. This market has not been shot , stabbed, or bludgeoned into submission so far. It has a life of its own, maybe helped by the outside markets.

While petroleum futures were making a record one-day move in reaction to chaos in Libya, corn prices were fighting off an "outside day" to keep the 3-month craziness alive. Last Tuesday May corn futures made a wild new high at 7.44-1/4,24 cents above the Monday close. It then turned around and crashed, posting a 6.90-1/4 close the same day.

This defines what the technicians call an "outside day," and, in this case, an outside day down. That is, the market traded higher than the previous day's high, lower than the previous day's low, and, in this case, closed at the low. This defines a negative chart signal. It does not get worse than this. By this indication, the party is over.

Except, it wasn't over. Yes, we followed with a lower day, trading a range of 6.67-1/2 (almost 77 cent off the high of the day before) to 7.04-1/2. We closed at 7.02-1/4, near the high. That was twelve cents above the previous close. We followed with one day a little lower and two sharply higher so that, here before the day's open on Tuesday again, a week later, we are back to 7.31-1/4.

Al that to say that we have fought off the outside day and the chart remains bullish. It is hard to say what part the outside markets have in this dip and rebound. Certainly the focus of the news has been on potential oil shortages as the Libyans don't go to work in the oil fields. Talk a couple of days ago was that tankers are bobbing around in the Med, waiting for workers to show up to load them at Libyan ports.

I would appear that Quadaffi will have to give up leadership, but he hasn't. A rope, a bullet, or a jail cell awaits him, and he is holding off the rivers of change flowing toward him. Six months after he is gone we will have some stability in oil production again, and we will know what it did to corn prices. Now we can only speculate.

It would seem that crude is rising faster than corn, so ethanol is getting more profitable. The poor sods need something, when they are trying to made gasoline out of $7.00 corn. We are in the process of proving to ethanol haters that producing fuel from cornfields will starve all the poor of the world. So far we are just starving the livestock producers.

A look at soybean futures proves that this is a corn rally. The corn has only been able to pull the beans so far. We made a May futures high on February 9^th at 14.67-1/2. (Beans in the teens! We are getting used to these prices.) By the 23^rd, however, we had dropped most of a buck and a half, to 13.33-1/4. We have rebounded, to 13.99-1/4 on the 25^th, then dropped again. The overnight close was at 13.70-1/2—basically a buck off the high at the same time corn is back near its high.

The Chicago wheat futures have performed more like the soybeans than the corn. The May futures high was February 9ty, at 9.25-1/2. The break was to 7.56-3/4 on the 23^rd, a change down $1.68-3/4. A good bounce since then has us trading 8.12-1/2 just before the Tuesday day session opens.

Draw your own conclusions from some of this. It seems the corn is trying to pull beans and wheat higher, but can't succeed at the extremes. I keep thinking the corn has to stop its meteoric climb. But, the March 31^st USDA Planting Intentions Report is still ahead, and then the spring weather market kicks in. Traders are focusing on the disappearing corn crop and worrying about getting a good start with a lot of acres. The market will not stand to be disappointed by either acres or conditions.

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.

Market Monitor

By Marlin Clark

Wild ride continues in Chicago

Fueled by USDA carryout projections that get smaller every month, corn prices have led the markets higher on the Chicago Board of Trade. The reality is that supply is going to get tighter as the market year goes on. This is driving corn prices toward the record highs of the 2008 year.

March corn futures made a new high Monday at 7.10-1/2, then dropped nearly 15 cents to close more than a dime lower on the day. Once again this gives us a chance to think the high is in. Once again the reality is that the swing just represents some short-term volatility and may mean nothing.

The new high represents a $1.15-1/2 gain in six weeks for the old-crop corn. It is the highest corn price since the 7.65 posted in June of 2008. That year we had a similar pattern of worrying the carryout down. We had the booming ethanol industry kicking up more demand than anticipated as more and more plants came on line or were projected to come on line.

This year it is more of the same, as demand is driving the corn wagon. It is hard to believe that this does not stop. As a trader trying to sell corn, it sure feels like this market has to come to an end. When there are no buyers, there is no trading. But, it felt like that in 2008, also. The end users will contract what they want next week, and there is no opportunity to sell ahead at the high prices, except to sell futures. That exposes us to unlimited margin calls.

While the corn futures go higher, the beans have actually traded off for several days. We have been down four days off the February 9^th March futures high of 14.55-3/4. We are currently overnight on Tuesday at 13.97-3/4. That is 58 cents off the high, which used to mean something. Now we just look at it as normal volatility. Still, it is significant that soybeans are lower, and ran out of steam following corn higher. The last beans low was at 13.64-1/4 near the end of January.

Wheat futures continue higher, but not every day. Five of seven recent days were higher, and we made the high last Wednesday at 8.93-1/4, more than 70 cents above the January 31^st low. We are currently 8.64-1/4 on the March contract.

So, we have some conclusions to me made. Is this the high? I don't know. Is this high enough to sell grain? Definitely, but it is getting harder to find someone who wants it. Will we remember this year for a long time? Maybe. The ethanol industry has changed everything, but the prices are now high enough to hurt the energy producers. That is not good long-term.

Meanwhile, we are now within sight of the real fundamental news of the winter, which is the March 31^st USDA Planting Intentions Report. Yesterday we got a glimmer of hope that the groundhog was right and we will get an early spring. My road melted down to the pavement before the sleet started again in the early evening. The six-foot snow plow piles will be with us for a month, regardless of weather, but the tile roofs on our house is bare. The avalanches woke us up a few times in the night, and left a pile in front of the garage that requires the all-wheel-drive car to conquer. I am not looking for any robins just yet.

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.

Market Monitor

By Marlin Clark

Bull market continues to bellow

Grains made new highs over the last week on the Chicago Board of Trade. The bull market continues to bellow, even though it is having trouble catching its breath at this high altitude.

Traders are looking at historical charts trying to decide how high we can go. Producers are wondering what to do, worried that they sold this crop too early. They don't want to repeat that for the new crop. Jobbers are wondering where the next margin call comes from, and fading basis to give themselves some protection. End users are questioning why they wanted to feed chickens or distill ethanol.

Markets like these put the fear of the Lord in everyone. (As in, "Please, dear Lord, don't let my banker know I used my hedge account to go long some soybeans!" Please, dear Lord, if you get me out of this corn short I will never talk to my broker again." Please, dear Lord, let the elevator forget I contracted that corn for 4.15.")

A little volatility is great for everyone. At the lows, the users get a chance to price. As prices go up, the producers get to price. Over the course of the swings, the cash traders get to buy high, sell low, and use hedges to make money on the swings.

A lot of volatility is tough on everyone. It is about to get tougher, like it did two years ago. Bad things happen when prices get high. Every hedged trader runs out of margin money and has to stop buying corn. It is always easier at high prices to buy corn than it is to sell it. Producers want to sell for next year, and the trader decides he cannot commit his line of credit to any long-term hedges. The end users don't want to buy any deferred grain because they are hoping it will be cheaper by the time they really need it.

Associated with the margin calls is a slowing down of pay in the entire business. The end users want six weeks now, and the margin calls mean a trader can't dip into his own money o keep payments fast.

So, soon the farmers will decide the prices are high enough, only to find that no one wants to buy the grain if they have to hedge it. The cost of carrying the hedge is too great compared to the chance for a profit. This happened two years ago when futures on corn got into the $7.00 range. I remember all the complaining. "But you have to buy it!" (No, I don't. I am not providing a public service at the risk of my company.)

Anyone selling grain to a cash trader needs to understand what his position in the market is. For example, I am a hedged trader. I am not interested in risking price change. If you want to sell to someone who does not hedge, be aware that if the market changes, he cannot afford to honor his contract with you.

If I buy corn, I have to sell futures. If I buy 500,000 bushels of corn and the price goes up a buck a bushel, I have to send $500,000 to Chicago for the privilege of buying your corn for a small margin. This can only happen so long. The bigger the trader you are, the bigger the problem you have. This is why, in 2008, everyone stopped buying. We are about to that point again. Traders will be buying for March, but not for November. Then, they will not be buying at all.

Looking at prices for the week, March corn futures have gained most of a dollar since the January 7^th low of 5.95. February 7^th the high was 6.82-1/2, but by the overnight going into the 8^th we are back to 6.69-1/4. So, a small break, and the fear the top is in again.

March soybeans are similar, with a 14.52-1/2 high on the 3^rd, then a break to 1416 Monday night. Chicago March wheat futures also made a new high the 3^rd, at 8.72-3/4. We are now trading 8.57, but we have come a long way from the January low of 4.59-1/2.

So, the corn made a new high in the last few days, but not the beans or wheat.

 

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.

Market Monitor

By Marlin Clark

New words for an old song

What's going on in the grain markets these days? Prices are mostly sideways in narrowing ranges as the markets seek direction. The most recent leg up may be the last leg. Instead of prices breaking sharply as we have seen in the past few months when we made new highs, prices are hanging on, but not going higher.

Rolling around in my head this morning was the old song, "What's Goin' On?" I had to look it up to see if it was Curtis Mayfield or Marvin Gaye. It was Gaye. And, except for the title, it had nothing to do with what's goin' on in the grain markets. Turns out it was a Vietnam era war protest song!

Corn producers are not protesting the grain prices right now, but feeders are. These are the best of times for producers, the worst of times for end users. Volatility in grain prices allows both sides an opportunity to price, but the bias for months has been high prices.

Now we are locked in a trading range looking for a reason to go higher or lower. From these heights, my bias is lower, but that has been true for the last buck. March Chicago corn futures showed a recent low on 1/20 of 6.27-1/2. By the next day we had posted the high at 6.67—nearly 40 cents higher. That is what you call a mood change. That is the kind of mood change that could have producers looking for $7.00 cash corn, but instead we have sideways trading. Although we got back near the high overnight going into Tuesday as this is written, at 6.61, we have in fact traded seven sessions between the high and the low. Most of the time we have seen prices between 6.40 and 6.62.

The soybeans show similar patterns, although they dipped toward the low at one point. The recent low was on January 11^th at 13.55-1/4 March futures. The next day we made a high of 1427, then a high the 13^th of 14.32-1/2. So, we had a nearly 80-cent range in three days. Currently we are back to 14.18.

Wheat is a different matter. There the world is still worrying about the supply and demand, and a sharply higher top was put in a few days ago. The old recent low was on January 11^th at 7.58-1/4 for the Chicago March contract. On the 27^th we made a new high at 8.63-1/2—more than a dollar gain in a few days. The current price is a break to 8.39-1/4. Even though wheat has shown the most bullishness, the current chart is not bullish depending upon how you read it. It looks to this semi-amateur technician that we now have a "head and shoulders" formation from the last seven days of trading. This is a strong bear signal if it is not my imagination.

So, the markets are looking for news to break out on. Prices are "consolidating" in a sideways patter, indicating a change to come. We need news to break out on. This is not a good time of year for news. Except for come export reports, the new big thing is the March 31^st Planting Intentions Report. After that comes spring weather speculation.

The plain truth is, the prices are historically high, even if we went a little higher two years ago. This may be the last good chance to sell before the elevators all run out of hedge money again. Or, we may be looking at the high and getting ready to kick ourselves for not pulling the trigger. The clay bird is out there, all fat and orange.

No one has the sure answer to the markets next month, not me, and not Marvin Gaye. Besides, he was talking about long hair and demonstrations.

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.

Market Monitor

By Marlin Clark

Grains gain ground again

Grains made new highs in the last week on the Chicago Board of Trade, but show signs of giving it back this week.

Some corn, soybean, and wheat contracts made new highs once again on the Board, but significant losses overnight going into the Tuesday trading have the new highs standing out on the Board. Prices struggled during the day Monday, with lower openings, then a return near the previous day's trading. That now would appear to be the harbinger for a Turnaround Tuesday.

Before the open Tuesday morning, March corn futures are down over nine cents, and the beans and corn are down over 12 cents on the overnight.

EPA made the big announcement Friday of the long-awaited okay for E-15 for cars made 2001 and after. This comes after an earlier announcement of E-15 for newer cars.

The news was met with the usual mix of reaction. Opponents of ethanol say the testing on the cars is incomplete. If I could buy any, I would let you know how it goes in my 1989 Mercury. It has been thriving on E-10, and I am hard pressed to imagine much difference. If it trashes it, my son's mother-in-law from Tennessee better not find out. 60,000-mile vintage cars are hard to find, and she was the source of this one.

Proponents of ethanol, meaning anyone with any sense in the ag community, are cautiously optimistic about the results of more ethanol in gasoline. If all gas went to 15 percent ethanol, we would be using 7.5 billion bushels of corn to produce it. That used to be our entire crop, and is now just over half of the crop.

How, in fact, do you sell E-15, however? I can't imagine every station putting in another pump at each pump complex, and another underground tank. A third of the cars would still be before 2001, like my Grand Lady, so the stations would not want to give up selling for them. Could they put in one accessory pump over on the side for low-ethanol gas and charge a premium, like they do for kero? And, even if the stations saw a way to do it, we don't have enough ethanol yet. However, the demand would give one more boost up to corn prices.

Ethanol does not have a lot of fans outside the ag community. We say that it helps our pollution problems, but the clean-air arguments can be made from both sides. It is true that the first slug of ethanol demand came when ETBE was outlawed. The big objection to ethanol is more personal. Even some of my conservative commentators argue that the ethanol boom has caused food prices to go dramatically higher all over the world. I have sympathy for the Mexican peasant who is eating his way through (they forget to notice) the US supply of white corn, none of which goes to ethanol. I know, the prices are run up just the same. However, this begs the old question of why exactly it is the farmer's responsibility to provide cheap food for the world if there is a way of making his product worth more? I don't see Shell and BP lining up cars at their stations to sell gas at half price for the good of the consumer.

Looking for a moment at the prices, we see that March corn futures made a new high on January 21^st at 6.67. This morning it is back to 6.46, 21 cents off the high. November soybeans made a new high at 13.64 on Monday, but is now 13.23. The old beans made a March futures high of 14.32-1/2 back on the 13^th, and have been mostly sideways since then. Current trading is at 13.92. This would indicate the old beans have run out of steam, but the new are rallying to get closer to the old crop in price. In corn and in beans, next year's prices are significantly lower.

March wheat futures made a new high of 8.39-1/2 Monday, and have held most of the gain. We are now at 8.35-1/4 on the March.

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.

Market Monitor

By Marlin Clark

Finally some news comes to the markets

Wednesday the 12^th USDA will finally release the whole wastebasket of news on this market. We wait with abated breath the results of their research to see if the trading of the last couple of months makes sense. Then, we anticipate the reaction to the reports.

Wednesday, of course the day after I have to write this, USDA will give us five reports of interest. They will come out before the market opens, and trading until then will be interesting. Trading after then will be manic or subdued or placid, depending upon any surprises in the reports.

The market sometimes hangs on the January reports because of lingering uncertainty about the actual crop sizes. I do not have the sense that we are all that anxious this year, but there is always the chance of a reaction. Wednesday we will see the final Crop Production Report. Along with that will be the Crop Production Annual Summary.

By this time we supposedly have all the corn and beans in a position to count them, and have counted them well. We know now what acres were abandoned, and what acres were amazing or disappointing. But, any change from current assumptions can move the market.

More interesting in principle is the World Supply and Demand Report. This will be torn apart as traders look for something unknown or changed to move the market. Ditto for the Grain Stocks Report. Are there any surprises about what is left in the bin? Since we are early in the crop year we are only looking at the chance that usage is slower or faster than expected, or that exports have varied.

Last in the list is the Winter Wheat Seedings Report. What acres are out there? Is the report consistent with expectations?

Then the games begin. At 10:30 our time the markets begin to react to whatever news is gleaned from this mess of information. AS usual, the news is not the thing, it is the twist that is important. Maybe the crop size is off a little from last month. Does that matter, or was it already in the market? Is there more wheat in the world than we realized? Is there less wheat, but that is why wheat has rallied back to the high? Of course, wheat is now 50 cents off the high, so what does that mean?

And on, and on. As usual, I like to get positions as even as possible and bet nothing on report days. I have encouraged sales, especially of corn, ahead of the report. By the time this is read, we will know if that was right.

This week prices on the Chicago Board of Trade have continued the erratic pattern of the last few months. Corn finished the lastest leg up and then made a big correction. The real recent low was back the end of November at 5.20-1/4 for March futures. The high was the first trading day of the year, at 6.34, nearly $1.14 higher. By the 7^th, however, we were back to 5.95, a break of 39 cents. The last two days we have seen a bounce from the correction to the overnight going into Tuesday at 6.12.

The March beans have been mostly higher since the mid-November low at 11.83. We made the New Year's high at 14.09, $2.26 higher! Amazing! We are currently at 13.85-1/2.

The wheat rallied from the mid-November low at 6.56-1/4 March futures to 8.25 on the 3^rd of the year. After a bread to 7.66-1/4 we are trading 7.76 currently.

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.