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.