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Veteran Advisor

From the floor September 7

Picking a trader's brain:

 

Let's go around the world on topics related to the grain markets, according to a CME Group floor trader.

 

He says, "In the end, we can solve the corn tightness..with a little less feed. Let's lose 100 million from here led by poultry and dairy. And some cattle liquidation. Let's find 150 million or more in Sept stocks due to early harvest and wheat feeding which I suspect is record. And of course find that corn yields are not as dire as the 146-147 that many are trading.
For beans, I am a bear as long as we don’t post a sub-40 yield. The fact is South American crops, last year, were tremendous. And they are still offering beans competitively for Oct Nov and Dec. This is gut slot for our exports. So, we think the USDA is too high by 100 million bushels. The Brazilian is poised for big bean acres this year and will start planting after Sept 15th.
The resolve of our bio-fuel program is that we become a residual supplier to the export market and let South America and Malaysia take the lead on soy and edible oil. So, I think exports tend to be overstated ,until we realize that crush capacity is too high in this country and we can continue to lose bean acres to corn. I would say another 4 to 5 million acres over the next several years, with brazil growing.
Meanwhile.. Chinese import margin for beans is negative and again I think it would take an 80 cent break in futures to entice them back into the market to extend coverage beyond their usual million tons a week. Crush margins there are scant. The gov’t also working to release old crop stocks there and clamping down on commodity collateral lending that has encouraged a stock build of copper, steel, soybeans etc…
Ukraine acts like they have more corn and wheat to export. If I am a $8.00 bull in corn and $15.00 in beans, I need corn yield on this report to be 148. It would imply deeper cuts to final and a 39.5 or lower bean yield or a bullish run in energies with crude back to $100 a barrel+….or problems with Southern hemisphere crops in Australia, Argentina, Brazil.
Otherwise..corn is 7.04-7.80 range… beans 13.20 on the down side. Worried lows could be after 1st of the year, with tax selling farmer, bio-fuel losing mandate, a good start to SA crops and week recession numbers into the holiday’s.
I think there are enough excess RIN’s so that ethanol consumer could slow by as much as 400 million bushels of corn grind in 2012… and I think the weekly ethanol numbers are implying too high of corn use. As most people believe, I think estimators are using too low of ethanol conversion, 2.75 bushels per gallon when I think the industry is approaching numbers closer to 2.9. Yet  another reason Sept stocks for corn could be larger..to be revealed on Sept 30….I am not short corn but if July/Dec12 goes back to 120+, post Sept 12 report, I will most likely find myself bear spread," he says.

 

Mike

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At the close:

The Dec. corn futures settled 7 3/4 cents lower at $7.48. The Nov. soybean contract closed 1 3/4 cents lower at $14.20 3/4. The Dec. wheat futures ended 8 1/2 cents lower at $7.51 1/2. The Dec. soymeal futures ended $1.40 per short ton lower at $373.80. The Dec. soyoil futures closed $0.63 higher at $58.67.

 

In the outside markets, the NYMEX crude oil is $3.23 per barrel higher, the dollar is lower and the Dow Jones Industrials are up 253 points.

 

Mike

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At mid-day:

The Dec. corn futures are trading 1/4 of a cent higher at $7.56. The Nov. soybean contract is 3 1/2 cents lower at $14.19. The Dec. wheat futures are 6 cents lower at $7.54. The Dec. soymeal futures are $2.20 per short ton lower at $373.30. The Dec. soyoil futures are $0.36 higher at $58.40.

 

In the outside markets, the NYMEX crude oil is $2.52 per barrel higher, the dollar is lower and the Dow Jones Industrials are up 202 points.

 

One floor trader says, "Little to do until we get a clearer picture on yields. Lanworth made the highs last week floating there 143 corn yield and Informa made the lows with their conservative 151 yesterday. In the end, you can drive a truck through the consquences of either number. In the end, I will go from fearing a low yield number on Monday to fearing perhaps a high stocks number on the Quarterly Report end of September. So far, I think corn price highs are in. Unless the yield is below say 148. Chinese import margin without import duty suggests $7.50 corn is fair. And ethanol equivalent suggests $7.50-$7.90 is fair. Doubt energy can rally much into end of driving seasonal. If hurricane activity would slow down then gasoline markets could slide a bit. Zero job growth is keeping me week in the knees, for new highs. But, doubt corn can stage a significant decline. I think 80 cents is downside risk, tipping our hat to some seasonal decline in fuel and harvest movement. Index funds also less active and have actually seen a sort of dribble out of the market over the last couple months of commitment of trader reports."

 

Mike

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At 10:25am:

Wheat and beans have turned lower. Corn is headed for negative territory as well.

 

Mike

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At the open:

The Dec. corn futures opened 7 1/4 cents higher at $7.63. The Nov. soybean contract opened 8 1/2 cents higher at $14.31. The Dec. wheat futures opened 10 cents higher at $7.70. The Dec. soymeal futures opened $1.20 per short ton higher at $376.30. The Dec. soyoil futures opened $0.56 higher at $58.60.

 

In the outside markets, the NYMEX crude oil is $2.52 per barrel higher, the dollar is lower and the Dow Jones Industrials are up 150 points.

 

Ouch! Egypt buys 300,000 metric tons of Russian and Kazakh wheat.

 

Mike

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At 6:25am:

Grab a cup of coffee, let's talk. Though still below the average by a few percentage points, yesterday's Crop Progress Report showed the corn is maturing at a faster pace than thought. This could mean an earlier harvest for some. How about you? Also, the soybean leaf-drop rate was down on average, signaling a later-than-expected harvest. Frost threat thoughts anyone? Overall, a weaker crop rating has the markets headed higher today. Well, plus the favorable outside markets.

 

Other things to talk about:

----China is tightening its policy on banks, again, requiring more money stored away for 'rainy' days.Ultimately, this affects the consumer, due to less lending from financial institutions. If consumers buy less, crushers crush less, and so on and so on.

--Japan wants 250,000 metric tons of feed wheat in September.

--Vietnam is buying feed wheat Wednesday.

--Indiana, Illinois, and southeast Iowa's soybeans need rain.

--Morning dew has been heavy in central Iowa most of this week. Anybody else getting this type of moisture?

 

Mike

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--At 6:10am:

Early calls: Corn up 6-8 cents, soybeans up 9-11 cents and wheat up 7-9 cents.

 

Trackers:
Overnight grain, soybean markets=Trading higher.
Crude Oil=$0.78 higher.
Dollar=Lower.
Wall Street=Seen trading higher.

World Markets=Higher as Germany works its way closer to supporting a Euro bailout.

 

Corn crop estimates are flowing in, ahead of next week's USDA Report. See full story here.

 
More in a minute,
 
Mike

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11 Replies
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Friend

Re: From the floor September 7

Hey Mike,

Ross Greenspan here. I'll tell you, I wasn't at all suprised to see the soybeans catch a bid off the 1410 breakout area. Do farmers look at a chart before they sell forward? That is a beautiful technical set-up they've got on a daily timeframe in the November Soybeans. Looks like 1500 is very doable in the next few weeks, if the world markets cooperate of course.

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Veteran Advisor

Re: From the floor September 7

RSYTrader,

 

Good morning man. I don't do this very much. In fact, I'm not sure I've ever done this. But, Ross, I hope you don't mind if I bring you out on 'stage' here this morning. For all you folks out there, I want you to meet my buddy Ross. Ross trades electronically, on the floor of the CME Group. So, he has the pulse of the market in Chicago. Thanks for stopping in. I'll let the farmers answer for themselves. But, I would say some farmers do watch the technical side of the market.

 

I'd be curious, can you offer up your thoughts on what you're seeing on your charts that leads you to believe $15 beans are possible in September?

 

Thanks Ross for sharing,

 

Mike

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Friend

Re: From the floor September 7

Thanks, Mike. Here's what I see in that November Soybeans (SX11). You can pull up any chart style on the day timeframe to view this. Just make sure it's the November contract and not a continuous contract.

 

In February, we went and had the first breach of 1400 but could not close above it and a hard pullback to 1238 in the aftermath of the Japanese earthquake and tsunami. The market made three more attempts at 1400 over the next 5 months and you can see we sort of boxed in roughly between 1300 and 1400. We traded sub-1300 three times most recently about two weeks ago. The market established a very clear recentangle about $1.10 high and five months long.

 

Now, we have broken out of the rectangle to the upside and on higher average volume. Participants have rejected that 1300-1400 area as too cheap for now. Let's take the recent length of the rectangle about $115 from the highs on 7/19 (1409.50) to the lows on August 10th (1293). The height of the rectangle gives a good estimate of the target once one side is breached so 1.15 (from the highs to lows) from the top of the rectangle, which is the 1409.50 high from July. Gives me a rough target of $1520.

 

It is tough to guess the timeframe we'll get there. I'm not sure we can do it in September but seems reasonable before first notice for November expiration.

 

EDIT: I wanted to add what indication there would be that this hypothesis for 1520 is failed. A close below the 8/26 regular trading hours (9:30 AM CST) open (1389.50) would indicate failure of the breakout in the short term. That would put everyone who bought the breakout move above 1400 underwater on their positions.

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Veteran Advisor

Re: From the floor September 7

See, this market stuff is simple when you use objects used in kindergarten class such as rectangles and squares to describe price movement. I can relate much better with those elementary items.  Smiley Happy  Nice job explaining the Nov chart Ross.

 

For the audience. Anybody else in the $15 soybean camp?

 

 

Mike

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Senior Advisor

At the rate........

corn and wheat and cotton will be buying acres this winter and next spring...........soya will be the crop to have.........not to mention the surprise coming this fall with soya yields............

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Senior Contributor

Re: From the floor September 7

To answer your original question Ross, I am 'aware' of charts and I knew about the 'rectangle' you mention although I was calling it a 'triangle flag' in my mind.

I was watching to see if it would break out higher OR lower but I do not really use charts to trade, just keep them in mind while I stir in a whole lot of other ingredients before making a decision.

MY fundamentals have to be considered too.

Is there a crop in the field?

Do I have storage?

What are my cash flow needs?

Some times these out weigh and technical signs.

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Friend

Re: From the floor September 7

Canuck_2 thanks for that explanation on some of the inputs that go into your marketing. It's something I'm interested in understanding a lot better.

 

I was watching lower too and honestly until last week I was expecting the break lower! 

 

I see that triangle flag, too. That one is much more clear on a continuous chart (rollover to the front month quarter to quarter). I prefer the straight line patterns if they'll give them to me. As a "market technician" (self-deprecating here), the slanted lines give me problems determining "true" breakouts.

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Contributor

Re: From the floor September 7

I'm in the same $15 camp as Ross.  Normally  months of sideways action (rectangle)  isn't a topping signal.  Now that we've broken out, 15-15.20 would be the first target.  If Mizzou's poor bean yields come to pass then 08 highs above 16 could be possible.  Other measurements with the uptrend starting around $9 point to possible $18.  I'm with Ross that the world market turmoil could over ride bean chart targets.  I think you're trigger finger has to be in ready mode 24/7 since the breakout.   And Ross, I would feel lost without my candlesticks.  Thanks, Mike and Ross, for posting.

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Senior Advisor

Re: From the floor September 7

Good luck guys. I don't use technicals at all in chart form. But if soy goes up it will be supportive of corn, and this year, supportive of wheat.

 

As an opportunist I'm hoping you are right, but have plenty of time to market this next year.

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