The Grains Pit Review

For the week of October 5th, 2009

By PitGuru Matthew Pierce

The previous week saw choppy sessions all week with beans containing 920 in the range all days except Friday when the market could not achieve it. Wheat and corn did little allowing for volatility to fall out of bed with a majority of the damage done Thursday and Friday. The trade is now expected to grind lower as domestic basis bids fall as harvest continues. Volume is moving to the sidelines as the trade lacks a trading incentive. This is a time for imagination and thinking outside of simple flat price directional plays.

The week ahead appears to lack any major news until WASDE on Friday. Harvest and weather are the biggest components of the fundamental side with the USD and crude the biggest macro inputs. Starting with harvest, there are a few weather delays and if Drew Lerner at Cropcast is right farmers will have a few more this week. Not a good thing for farmers and it does support a higher domestic basis bid but this is short lived. I continue to feel a bearish stance in flat price is advised due to the massive crop expectations which keep getting larger. For example, FC Stone is looking for corn to approach 164 with beans over 44. Both are much larger than current USDA numbers that will be advised on Friday’s WASDE.

Macro factors continue to direct our market with any bearish shift in the USD helping export expectations thus eating into the growing ending stocks numbers. Any bullish shift in the dollar will hinder exports drying up the gulf bid, in turn drag flat price lower.

Crude remains integral for corn in that Ethanol margins remain favorable as long as crude remains pricy. This is tenuous but still evident in the trade so continue to watch. Another aspect of underlying support is the commercial bid. After years with corn reaching 5.00 current prices look quite attractive. This is exasperated by sugar prices which have increased the price and bid for HFCS. This helps the domestic bid, especially in Decatur, IL as I have talked about on the morning calls.

From a trading perspective I have to get more creative with spread choices... as subscribers can see with certain opportunities coming to the table recently. Intermarket relationships are back in vogue due to varied S. American planting expectations. The weather situation down there has improved slightly but subsoil moisture levels are still far too low for comfort this close to decision time. This makes for an interesting trade opportunity in CZ versus SX so stay tuned for further discussion.

In closing, our growing season is all but done with only the final results left to question. The outcome is agreed upon... we are sitting on a massive crop! Subscribers should watch emails this week for position exits with current positions having moved as expected...finally. I’ll be making moves, so keep your ears peeled.

Past performance is not indicative of future results.

***chart courtesy Gecko Software