The dollar is at new record lows and the outside inflationary markets are strong, with crude oil reaching another all-time high in Tuesday's morning trade. This will provide underlying support to the grain markets, including corn with its ethanol component. There is little other fresh news out. The U.S. harvest is nearing completion, and is becoming less of a factor on market direction. Friday, November 9th is a USDA supply and demand report and corn can be 10 higher or 10 lower Friday morning, depending on this report. The stage is set for these grain markets to fight for acres in 2008. Harvest is over and we are now trading demand. Demand is very strong in corn, as evidenced by Taiwan buying U.S. corn overnight in export tenders. With soybean prices at $1,030 and wheat prices at $8, corn has to rally to buy adequate acres in 2008. Even with a large 2 billion carryout, corn looks attractive to us. Remember $9 wheat equals $6 corn. If we can have $100 crude oil, we can have $5 or $6 price for corn. Consider buying March corn, and selling March wheat. The margin on this spread is $2200.
Soybeans are now the leader on The CBOT floor. The market surged to new contract highs overnight, and expected price support from soy oil amid crude oil strength and new record highs in Malaysian palm oil will lend support. We planted more corn this year than since World War II. This came at the mercy of soy acres and now we have an enormous bullish scenario in soy carryout. The function of this soy market is to trade to higher levels, and buy all the acres it can in South America and North America. So far it is doing a great job. Look for continued volatility in soybeans with a bias to the upside. We love the bull spreads in beans, and being long SN8 and short SX8 on pullbacks is a good spread. Buying soybeans on any 20, 30, 40, or 50 cent break can also be good. If there is any seasonal theme I can hang my hat on in the 20 plus years I have been doing this, it is being long soybeans going in to Thanksgiving and the Friday after Thanksgiving. We are looking forward to this opportunity in a few weeks. Contact your RJOFutures representative for more information on this.
U.S. wheat futures are 13 higher in Chicago, and 9 higher in Kansas City Tuesday morning. Wheat is getting spillover strength from firmer outside markets, with support from a Pakistani tender and news that the Ukraine will extend its ban on grain exports. Export demand will be the catalyst to drive wheat higher. We know the size of the Australian wheat crop, and it will now be demand as the sole driver of higher wheat prices. We like the spread being long December Kansas City Wheat, and being short Chicago Wheat.
