From the floor December 1

[marketeye]

Wheat Options Talk: One trader says, "Going home, the wheat apprears to be fairly priced considering how we sustained the early shock of sharply higher.  But keep in mind, the last week or so has been anything but a logical reflection of the underlying potential energy that's undoubtedly lurking beneath the surface of this wheat futures market.  The massive open interest in the Dec., and the fact that we couldn't shake that 650 level seemed to keep a lid on this stuff at the same time that most traders felt confident about wheat  at a much higher level.  But judging by the ludicrously scant levels the Dec. straddles were trading all week last week it just wasn't going to happen till after Friday."

Mike

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 At the close:

The March corn futures settled 22 1/4 cents higher at $5.66 1/4. The Jan. soybean contract closed 40 cents higher at $12.83. The March wheat futures settled 49 1/2 cents higher at $7.40. The Jan. soyoil futures contract settled $1.61 higher at $52.61. The Dec. soymeal futures contract closed $7.80 per short ton higher at $348.50.

In the outside markets, the NYMEX crude oil is $2.48 per barrel higher, the dollar is lower, and the Dow Jones Industrials are up 258 points.

Mike

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At mid-session:

The March corn futures are 18 cents higher at $5.62. The Jan. soybean contract is 33 1/4 cents higher at $12.76 1/4. The March wheat futures are 42 cents higher at $7.32 1/2. The Jan. soyoil futures contract is $1.27 higher at $52.27. The Jan soymeal futures are $6.00 per short ton higher at $346.00.

In the outside markets, the NYMEX crude oil is $1.39 per barrel higher, the dollar is lower, and the Dow Jones Industrials are up 197 points.

One analyst says, "After a flat to lower overnight opening, two pieces of bullish news hit for wheat pulling it up sharply overnight and pulling corn and beans along. First, let's set the stage for the wheat and grain rally. Monday brought the last weekly crop condition report of the year for wheat showing 47% of the crop was in good to excellent condition, the worst
condition in 20 years. Then yesterday, Canada told us just how little high protein milling wheat they have, noting they have a six year high of low quality wheat, only suitable for feed usage. Then number four world wheat producer exporter, Australia, announced record wheat harvest rains have cut protein levels sharply, while India announced they are stopping wheat exports until the world wheat production situation for 2011 clears up. All this news together brought heavy buying to wheat. Trend-following funds recently built a 45,000 contract short position, the most since last spring and began short covering for protection. And with corn and bean traders sitting on big cash from the recent profit-taking break from Nov. 9, they came back in buying," he says.

Mike

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At 9:45am:

Egypt buys 220,000 metric tons of U.S. wheat Wednesday.

Mike

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At the open:

The March corn futures opened 11 cents higher at $5.54 3/4. The Jan. soybean contract opened 23 cents higher at $12.66 1/4. The March wheat futures opened 36 cents higher at $7.26. The Jan. soyoil futures contract opened $1.13 higher at $52.15. The Jan soymeal futures opened $2.70 per short ton higher at $343.50.

In the outside markets, the NYMEX crude oil is $1.51 per barrel higher, the dollar is lower, and the Dow Jones Industrials are up 187 points.

All the stars are aligned for a rally. The Dollar is falling, the Dow is surging higher, and the overnights were sharply higher.

Mike

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At 8:15am:

It's Dec. 1 and it's snowing here in Chicago. It should be snowing today shouldn't it? I digress.

Speaking of weather, downpours are affecting the Australian wheat harvest badly. After record-wet September and October, the month of November was wet as well. The result is a downgrade of wheat quality and more concern for the wheat market to digest.

Mike

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At 7:25am:

It's interesting to note that Argentina's Ag Minister is saying, today, that his country can expect a corn export deal with China in the first half of 2011. In fact, he seems confident that Argentina will ship large amounts to China. Maybe less now that China is reporting record harvest, but still big shipments. In addition, Argentine officials are trying to nail down agreements with Russia on corn exports.

I posed this question to an analyst the other day, regarding Argentina stepping in front of the U.S. on the China and Russia business. He says this is partially positive for the corn market. He says not to get caught up in the U.S. losing out on those exports. Instead, what this shows is that world demand for grain is going up. Focus on the fact that world grain supplies are being drawn down. This may signal that China needs more corn than they are leading on, if they have to get it that quickly and from the No. 2 world corn exporter. Bottomline, corn prices could be building in long-term support.

I'd be curious to hear your perspective on this development.

Mike

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At 7am:

Early calls: Corn up 4-6 cents, soybeans 12-14 higher and wheat up 18-20 cents. December, in like a lion, out like a lamb?

Trackers:

Overnight grain markets=Trading sharply higher.

Crude Oil=$1.27 higher.

Dollar=Lower.

Wall Street=Seen trading higher as good economic news comes out of China and the UK. Manufacturing reports in those parts of the world showed positive growth, despite the European debt crisis.

World  Markets=Higher.

So, is this sharp spike up a result of favorable outside markets or South American weather. One analyst, this morning, is telling his daily newsletter readers that SA's weather is trumping the 'outside' markets influence. What say you?

More in a minute,

Mike

[kyjlong]

Normally astute venders don't brag about sales untill they actually happen.

AKA, counting your chicks before they hatch.

[Palouser]

I think the turmoil after the last report is now over and the fundamentals of physical again asserts itself - as it always does. Speccing and funds can jerk the market around in the very short term, but fundamantals are it - or futures become a complete joke that no one can bear to think about.

The wheat situation is the natural progression of events finally pushing through the distracting paper flurry. IMO this will continue for now. Have to laugh at the trader regarding India closing off exports. To my knowledge they have not vbeen exporting to any degree because of the subsidies needed - in fact they just announced that they will let millers import in the future.

The deal between China and Argentina is inconsequential in the big picture. China always maintains backup sources and is always buying. That will continue. If they continue to run up big purchases of our beans they will push the US ending stocks to impossible levels and I do believe that the US situation predominates in the area of market psychology. If the production figures in SA do worsen then China would do well to make an agreement with Argentina at this point, making it less likely Argentina would introduce domestic policies that threaten China's need for product. Another choke point for China is that that West Coast export capacity is apparently 'maxxed out'. The latest Egypt buy of over 200,000 tns is beginning to look like the good old days. It's a big deal.

OK, I alwaus talk about 'shoes dropping', as I was reminded of by Pritch. I am still looking for information on Pakistan's planting season which should have been about complete by now in a normal year w/o floods.