Market Monitor

By Marlin Clark

Corn market steady by jerks

Picking the top is an inexact science, mostly defined after the prices go down and the top is apparent.

Regular readers have watched me struggle to study the price movements the last few weeks. I am glad to have been able to provide a little humor as you laugh at the struggle.

Once again it is Tuesday morning, and once again I am trying to pass on insight that I don't really have. Prices are sharply lower on the overnight trading, but does that mean anything? The corn has continued to trade above the report gap, but with weakness apparent on some days. Meanwhile, trading seems to be focused more on the soybeans, with trade there still in an uptrend.

November soybeans gapped from $11.35 to $11.50-3/4 the Monday after the USDA Crop Production Report. It continued an uptrend, making a double high of 12.23-1/2 on October 21^st and again on the 25^th. It is currently trading 12.12-1/4, down 5-3/4 overnight. Volatility is such that being a dime or so below the high does not mean anything.

It continues to amaze me that the big bean crop is being discounted into higher prices. On the one hand, these are great prices, and when they come at harvest they may be the high for the year. On the other hand, everyone is cautious about being short. Soybean futures have gained most of $2 in this month so far. USDA cut the production number a little, but this seems like a huge over-reaction. I have to remember that the market is always right.

December corn futures continue to consolidate above the gap. This so far continues to feed the island formation, which is a pattern of trades above the trend line, separated by the report gap, the blank spot on the chart left by the reaction to the USDA report. As discussed a couple of weeks ago, this can be a dangerous formation. We can fall back through the gap to sharply lower prices, or we can use this as a staging ground to go higher, and there is no island.

Prices have had strong volatility, but have stayed in a range of 5.50 to 5.85 for the most part. That is a big range, but price change means nothing within that until there is a change of direction. Prices are thus "steady by jerks."

Right now it feels like the beans are holding the corn up and the corn prices will fall when beans top out. Then again, I may be wrong.

The wheat futures continue to stagger along, held up by the other grains. They are forming somewhat of a pennant, as the trade volatility stays in the same range but gets smaller. So, we will see a trend change soon. That can be up or down.

This time of year the wheat gets ignored, as most elevators will not touch it while being buried in corn and soybeans. Farmers who are watching and wanting to sell next year's crop will discover that, in these times of margin call mania, traders are reluctant to book anything and basis is historically weak.

 

 

 

 

 

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

Hunting the tops at harvest

Grain markets on the Chicago Board of Trade continue to hunt chart tops, even as combines roll. This defines the concept of "contra-seasonal," as we normally are weak at harvest.

Grain prices continued to press higher after the October 8^th USDA Crop Production Report. As discussed last week, that surprised the market with lower corn and soybean crops than expected. In the case of corn, the crop was cut four percent and is no longer expected to break last year's record.

Normally I expect a crop report to be a "one-day wonder." That is, we adjust prices based on the new expectations and go on. Sometimes we go higher with lower production. Sometimes we go lower with higher production numbers. Sometimes we go the opposite of the expected move because the change is there, but not as big as expected. Still, we correct in one day, then the trading moves on.

An exception comes when the surprise is large. In this case, markets were limit up Friday the 8^th, so all the pressure was not relieved. Since the report came on a Friday, the limit moves could have been considered an overreaction by traders not wanting to be exposed over the weekend. Fortunately, Columbus Day was not a trading holiday, which would have made the situation worse.

It would not have been a surprise to come back in Monday and actually trade lower. I expected to trade lower by the end of the day. I was wr..wr..wrong. Markets had follow through that is only now working its way out of the market, a week later.

Here on Tuesday morning before the day session has started, we are sharply lower on corn, soybeans, and wheat from the overnight session. December corn futures are off more than a nickel, beans are down 14 cents, and the wheat is off eight and a quarter cents. This is a nasty change in prices, and gets all three commodities to the bottom of the range traded since the report.

Corn and beans left large gaps in the chart by the spurt higher Friday. This gets the technicians a chance to get excited. We have now traded seven days above the gaps, counting the overnight Monday/Tuesday. If we should gap lower, we would have created a very dramatic formation—the island top. This is represented on the chart by several lines above the chart that look like an island, not connected to the rest of the chart. I would be extremely negative. It is also unlikely, given that the overnight did not start the gap, but has traded down into the gap, as did the trade yesterday.

Next in negativity would just be lower trading that would fill the gap. That is, a return to the levels we had before the Friday reports. That would mean we had absorbed the report and the excitement was over.

It remains to be seen where we are going, but the chart formation demands it be defined soon. If we turn higher without filling the gap, we have defined a bullish move instead of a bearish one. And, we have defined it at a "contra-seasonal" time.

Looking at prices, December corn gapped from 5.28-1/4 to 5.55 Friday, then traded as high as 5.88 on last Wednesday, the 13^th. We are now at 5.52, back into the gap. Soybeans gapped from 11.35 to 11.50-3/4 Friday. We hit the high of 12.04-1/4, a very high significant number. Twelve dollar beans! Now we are at 11.70, which is well above the gap. The case can be made that this is now a bean rally, and beans have not turned negative, since they are still trading above the gap.

The wheat was up 60 cents Friday to 7.39-3/4, but that seems to be just in sympathy to the other grains, and a mere blip on the slow stairstep progression to lower prices. We are now 6.81-3/4.

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 old gray mare has loped in

The old gray mare, she ain't what she used to be. You know the one—she galloped in and got you all excited about how fast she was, then ran out of steam. No she looks like a nag you were a fool to bet the farm on. She looked like Secretariat's great-granddaughter, but now you realize she was overdue for the Amish auction. (Maybe that was too obscure. Many of the Amish buggy horses come from racetrack auctions of horses that have run out of steam.

The old gray mare this week is the grain markets that have broken badly and are barely showing signs of recovery with small gains Monday and Monday night/Tuesday morning. Maybe "broken badly" is an understatement, Just how do you describe the market action that takes 72-1/2 cents off corn, 1.02 off soybeans, and 1.13-1/2 off wheat in just a few days?

This is a mare that stumbled in the backstretch, broke her left forefoot, and could not finish. No, wait, that actually was a horse in the Breeders' Cup a few years ago! They put a tent around him for the sake of the queasy onlookers, put him down, and carted him away. Not a pretty sight. About like trading grain the last few days. Some days I am glad I am working in the "tent" of my office and not in the pits in Chicago in front of God and everybody.

In case you were running beans and missed it, this is a market that will be remembered for awhile. In fact, it will be some time before we have a coherent reason for the break. That is my challenge this morning.

First, look at the prices. We always say that a high price at harvest is the high for the year. That was true until two years ago when the reality of ethanol demand kicked in and gave us a higher market after a high harvest.

Right now you can make a case for a harvest high right at the start of harvest. December corn futures rallied after the government Supply and Demand Reports of a week ago Thursday. The high came the next Monday, with December corn touching 5.28-3/4. First we had looked for the any futures to touch $5 as a landmark, but the market did not immediately collapse when it happened. The trading held on until all the contracts were well over the benchmark.

Then, the selling kicked in an accelerated. Monday we closed down nine cents on the day, and 16 cents below the high. Tuesday we actually gained a nickel, as traders took the adjustment into consideration. However, Wednesday the contract was down nine and a quarter cents, and that led to the limit-down 30-cent drop on Friday.

We made a low Monday at 4.54-1/4, and I think it was in the overnight trading. Hard to keep track of these quick adjustments some days. Whenever, that represented a high to low of over 72 cents in a few days.

Similar action in the beans dropped us over a dollar., to a November futures low of 10.42. We are back to 10.60-1/2 in the electronic trading early Tuesday. The wheat appears to be a different matter, with fundamentals there not suffering the surprises in the other grains. The chart looks flatter. Look more closely, however, and that is just because the high at 8.68 in early August has compressed the chart. Run the numbers and wheat has lost more than a dollar since September 20^th.

Pick your reason for the drop in corn. USDA came out with a Grain Stocks Report that showed 1.7075 billion bushels left over on September 1^st. That is several hundred million bushels higher than trade guesses. Analysts immediately discounted the number, and maybe even trading those feelings for two days. The argument was that we had an early start to the harvest, and that meant we had a goodly amount of 2010 crop corn counted as carryout of the 2009 crop. Two days later the trade started trading the USDA number.

Then, the corn harvest so far appears to be confirming the USDA record crop projections. The traders were convinced USDA was too high, but they are losing their nerve.

Then, there is just the contra-seasonal impact of the market. It is the wrong time of year to rally corn, and the pressure of harvest helped break prices.

It remains to be seen if the high is in. If it is, most farmers are way undersold. Traders talk of this percentage and that retracement. No heroes have emerged to swear that this is just a hiccup.

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