Market Monitor

By Marlin Clark

Whoa, baby! Hot! Hot!

One of our family stories involves number one son in a restaurant tasting his soup. The attractive girl going by our table was surprised to hear a 12-year old blurt out, "Whoa, Baby, Hot! Hot!"

I thought of that yesterday as I watched the attractive corn prices go by my screen. I have to admit to surprise checking the overnight trading and seeing a quote over $5.23 per bushel. Whoa, Baby! Hot! Hot!

The speculation for the last few days and the last thirty cents has been if we could break $5. When we got to 4.70, we were looking for a break, but the market watchers were speculating that we could go to 5 just because it was there and we were close. So, we made a run at the $5 and hit it overnight going into Monday. We not only got there, but we got a little momentum, maybe from hitting buy stops set by speculative traders, and spurted nearly 25 cents higher.

So, now we are looking for direction. The magic number has been hit. Last week the idea was that we could touch it, then crash lower. Yesterday the talk was that we could go right to %.50 with the momentum we had. In fact, early trading took the overnight prices lower. By the end of the day we closed down a nickel. The overnight into Tuesday as this is written is not quite even, at 5.07-3/4 December Chicago futures.

At the same time, soybean futures were also higher on the overnight going into Monday. We gained over 66 cents from the Thursday low of 10.33 November futures to the Sunday/Monday overnight high at 10.99-1/2. For all intents and purposes that is the staggering target of eleven dollar beans, and represents an on-farm price of ten dollars or so—maybe more, depending how close the producer is to a processor.

Since the high we have drifted lower, but still posted a high overnight going into Tuesday of over 10.93 November and a close before the day session of 10.86-1/4. We are up not quite two cents as we wait for the open.

This action on the grain markets defines what we call a "contra-seasonal" market. That is, the seasonal history is that prices decline going into harvest, but we are seeing improvement. The reasons for this continue to be the same as we have discussed for the last few weeks. First, the market is not convinced that USDA's record corn crop is actually there. Second, the market sees exciting demand in worldwide markets.

Demand from Europe has been the dominant feature of those who say the market is now demand-driven and not supply-driven. We are shipping corn east to replace the feed grains that were not grown in drought-ravaged Russia and Ukraine. The exports that the FSU would normally push into Europe are going to come from us instead.

Hidden in the demand picture is another factor that may be driving prices. The rumor abounds that this week Ag Secretary Vilsack will announce E-15. That is, blenders will be allowed to sell gasoline that is 15 percent ethanol instead of ten percent. It remains to be seen if this is just a rumor, although the ethanol people have been promoting it for a couple of years, ever since they got enough capacity to get to ten percent in all gasoline. It also remains to be seen if it is a cause of the current rally.

While futures prices are moving higher, basis is dropping as a reaction, and as we make the transition to new crop. Silos are full of high moisture corn, and combines are turning out corn in the low 20's in our area. Bean harvest is in full swing. Yields are what have been expected. That is, there is huge variance between farms. I am hearing of 77 bpa beans, but beans that are only 18 inches high from moisture stress only a couple of miles away.

So, the trend remains unknown, and prices are volatile. The rule of thumb is, the high price at harvest is the high price for the year.

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

Another Tuesday, another confusing turnaround

Once again it is Tuesday morning and I am trying to make sense of an exciting week. Once again we have made new highs, then traded lower in the overnight electronic session ending early Tuesday morning. Once again I get to say what is going on without really knowing. Just like everyone else you read, only I admit it!

Grain markets have decided to trade the Friday USDA reports as bullish, even though the news in them was already being traded. The result is a run at $5.00 futures on the Chicago Board of Trade. July and May contracts each had highs Monday at $5.02. December futures hit 4.86-1/2. This was 16-1/2 cents above the Thursday close, and 22 cents improvement in ten days.

The USDA Friday before the market open released several reports. They now say our corn crop will be 13.2 billion bushels. They reduced the guess 250 million bushels, but this would still be a new record. It would break the 2009 record of 13.1 billion bushels.

Just think about this. We are having two record crops in a row, if USDA proves correct, and yet we have surged prices to near $5 levels. What gives? Hate to repeat, but the fundamentals and the emotions remain the same in the pits. First, traders are not convinced the bushels are there. They think the crop is smaller than the USDA numbers. The, we have a demand-driven market. That is, the market is more concerned with how much corn is needed than how much we can supply.

The demand side has been driven the last five years by ethanol demand. We have continued to ratchet up acres and total corn supply and the market has responded with higher prices at the same time. This year the increase in demand is helped by Russian wheat problems. A significant portion of their wheat crop comes back into the EEC countries as feed wheat. That will not happen this year, given the small wheat crop due to record drought. This year the Russians will eat the feed wheat.

The response to the need for feed was the EEC deciding that maybe they could feed our "Frankenfood". That is the derisive term for crops grown from Genetically Modified Organisms (GMO). The greenies there had shut off imports of our crops when we "contaminated" supplies with GMO's. They believed that it was not nice to fool with Mother Nature, and the grains would not be safe.

Now we are way past contamination, and the bulk of corn and soybeans come from GMO seed. This has been a boon for production, but has limited some exports. Now the Europeans are hungry, and they have approved six varieties of corn for import, and have imported the first vessel.

This is very good for the future. For now, it is supporting prices in another big-crop year.

The mood in the pits has been less than euphoric, but has mainly expressed the reality that traders will want to run at the $5 level now that we are close. Talk has been that we could hit that, then crash. Now we are studying the reality of what does a run at $5 mean? If it is in any month, we are there, and this is Turnaround Tuesday. If it needs to be in the nearby month, we have one more leg up to gain. So far I am not hearing talk that the bounce lasts beyond that.

I am reminded of the comment of one trader three weeks ago, however. He said that, whatever low we made (which we made shortly after his comment), it would be the long term low. Prices would stay above that for a long time.

Maybe so, maybe not.

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

The fat grain buyer is quiet

Bill Barnett says I was wrong about my thinking last week. I said, "It's not over until the fat farmer combines!" Meaning, the market top is not in yet. Bill says it's not over until the fat grain buyer sings, and I'm pretty sure he was talking about me.

Now, Bill was at my karaoke birthday party last summer. He knows what everybody who has seen me in the last thirty years knows, and he has also seen me sing. And, he is right—I haven't been singing. Oh, I keep chirping about the high being in every time we get a peak in prices. Then, we trade off a few days and come back to make new highs in corn. No singing in there anywhere.

Once again this week we made new corn highs. Once again as we go into Tuesday morning the overnight is sharply lower, and I start thinking the top is in. I'm not singing about it, however. Is this a mood change, or just a knee-jerk reaction to the highs we put in on Friday, when we were worried about the long weekend?

Friday corn made a new high at 4.67 December futures. We saw a 21-1/2 cent range and closed 17 cents higher. This leaves me scratching my head, as the end of the rally is frequently the biggest day. So, was this trade a reflection of the long weekend, a blow-off top, or just one more big day up?

It is no surprise that Tuesday morning, as this is written, the December corn futures are down 5/1/4 cents. Interesting to note, however, is that we actually made a new high on the overnight, at 4.69. Just to prove my humility, or to make an attempt at it, I should point out that when we made the spike high on wheat overnight on the 5^th I said that the sympathetic corn high was phony and would remain the high, at 4.38-3/4. So far I am wr, wr, wrong, by30 cents.

Chatter from Chicago this morning is about the near-record long position of traders in Chicago. This is the biggest number of long contracts and options in two years. That is an indication that the bull really needs to be fed, and that we are running out of the ability to trade longer forever. We could trade this as a long-term high, or it could be another stepping stone. Advice from the floor this morning is to use puts to protect against prices falling.

While corn has made new highs, the soybeans have not. Beans have traded in sync with corn, but without as much volatility. Thus, soybeans were up 26 cents overnight going into Tuesday, but the high was 10.41-1/4, still off the 10.49 spike high of the 5^th. The overnight session close for the November futures was 10.35.

Wheat futures continue to look for direction after the precipitous breakdown in prices the 6^th of August. Remember that we turned around $1.20 at one point that day. December wheat futures are off 12-1/4 overnight. We are 7.29, $1.39 off the high. The good news is that we have bounced 52 cents off the bottom.

Traders continue to be focused on crop news as they try to determine what our corn, especially, is going to turn out. A remark heard this morning was that USDA might raise the corn yield number, but the trade would not believe it. The bias in Chicago still seems to be that the corn crop is suspect, and demand is going to be more than allowed so far in the USDA Supply and Demand Report. Consequently, the market is still bullish.

And, I am holding off on the singing. Of course, when I do sing, it will be the traditional call of the grain trader. That is Ray Orbison's "It's Over!"

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