KCG FUTURES PM GRAIN FUTURES COMMENTS

KCG FUTURES   PM GRAIN FUTURES COMMENTS  

 

     Grain futures traded at lower prices early in the session in response to weather forecasts indicating confirmation of rain events in the US Midwest over the weekend and next week.  Mid morning the weekly Drought Monitor indicated increases in the percentage of the Midwest impacted by drought (28.7% this week versus 25.1% last week) and severe drought (7% this week versus 3.7% last week), and this began to encourage short covering the beans.  The midday weather forecast lowered rainfall estimates for Midwest.  Rather that rally the entire grain futures market, traders began buying the bean complex and selling corn and wheat to reflect the magnified impact of the drier scenario on exceedingly tight beans and meal supplies.

     Early in the day the SX/CZ ratio had eroded to 2.87% – well off the 2.95% recent high.  By the end of the session the bean/corn ratio was back up at new highs – closing 2.97%.  How high can this ratio go?  In 2005 the ratio topped out near 3.2%, and in 2009 it topped out near 3.4%.  On the other hand, the ratio should be under pressure as bean harvest ramps up. 

     The function of the market should be to shift world demand to South America from the United States.  If South American farmers plant more acres with decent weather, then the ratio should ease.  If there are continuing production issues in the US – too hot, too dry or an early end to the growing season, or there are planting issues in South America then the ratio could continue to gain.  The following chart gives some examples of various corn – bean prices at various ratios.  Note that with corn at $4, the price of beans changes 40 cents for each 0.1% change in the ratio, and at $5 corn the change in the price of beans is 50 cents per tick.  It has not been unusual to see a 0.1% swing in the bean/corn ratio during a trading session.

             

Beans should be close to $13.50 if corn is $4.50 and the ratio is 3%.    

 

Ratio

2.5%

3.0%

3.5%

CZ

 

$4.00

 

$10.00

$12.00

$14.00

$4.50

 

$11.25

$13.50

$15.75

$5.00

 

$12.50

$15.00

$17.50

 

     Tomorrow morning the USDA will release its Weekly Export Sales Report.  The pace of new crop export sales has been impressive, but unsustainable.  It will be interesting to see if the recent run up in futures prices has reduced demand.  Corn and bean basis levels have been eroding and are relatively cheap for October.  The basis for SRW barges has become exceedingly cheap, and makes me wonder if there have been cancellations.

     There should also be headlines tomorrow as analysts issue their yield and production estimates for next Thursday’s USDA Supply-Demand Report.  Yesterday FC Stone indicated at 41.2 bu/acre bean yield  – close to consensus, and a 156.4 corn yield – above the 154 trade consensus.

     Today’s futures trade closed the KWZ and MWZ at new low prices.  WZ traded within a penny of old lows early in the session but although closing at a new recent low it is still a nickel above season lows.  CZ closed at new recent lows – now just 15 cent above contract low.  SX rallied 30 cents off early session lows to close $2.05 above August lows.  If the US gets good weekend rains, it’s likely to see new contract lows in corn.  Good rains should also erode the bean/corn ratio.  On the other hand ….  disappointing rainfall could bring buyers in off the sidelines. 

     It’s interesting to note that the CU-CZ gained another couple of cents today to close near a 29 cent inverse, while the CZ-CN continued to widen and closed at a 28 cent carry – so CU13 and CN14 closed within a penny of one another.  On the other hand, the SU-SX gained a dime to close at a 55 cent inverse, and the SX-SN gained a nickel to close near a 59 cent inverse – so SU13 closed well over a dollar higher than SN14.   

       Helen Pound

 

GRAIN FUTURES CLOSING PRICES AND CHANGE

Close – Rounded

 

CZ3

SX3

SMZ3

BOZ3

WZ3

KWZ3

MWZ3

Today’s Close

$4.61

$13.68

$429

$0.4353

$6.40

$6.89

$7.11

     Change

-9

+15

+7

-0.0040

-6

-9

-11

Total Open Interest

1,067,863

599,377

263,370

284,625

359,194

137,826

33,956

     Change

-3,869

+8,363

-3,890

+385

+1,015

+908

+1,460

OVERNIGHT PERCENT CHANGE IN FUTURES VALUE

Grains

Corn

Soybeans

Soy Meal

Soy Oil

Wheat

KC Wheat

MN Wheat

September, 2013

-0.9 %

+1.8 %

%

+2.3 %

%

-0.9 %

-1.1 %

-0.5 %

-1.3 %

December, 2013

-1.8 %

+1.1 %

+1.6 %

-0.9 %

-0.9 %

-1.3 %

-1.5 %

July, 2014

-1.7 %

+0.8 %

+1.6 %

-0.8 %

-0.8 %

-1.1 %

-1.3 %

OVERNIGHT PERCENT CHANGE IN FUTURES VALUE

Macros

 

Dollar

10 Year

S&P 500

Crude Oil

Copper

Gold

Silver

Percent Daily Change

+0.5 %

-0.5 %

+0.1 %

+1.0 %

+0.1 %

-1.2 %

-0.6 %

TERM STRUCTURE

Carries (Inverses) – Rounded

 

Corn

Soybeans

Soy meal

Soy Oil

Wheat

KC Wheat

MN Wheat

September – December

(283/4)

(55 1/2)

(50.4)

0.0034

13

(12)

5

     Percent Full Carry

(140 %)

(319 %)

(511 %)

51 %

62 %

(36 %)

18 %

December – July 2014

28

(59)

(27.8)

0.0097

15

4

28

     Percent Full Carry

59 %

(82 %)

(121 %)

62 %

32 %

8 %

44 %

INTERMARKET SPREADS

                                                                    Rounded

 

W-C

S-W

S-C

S/C

BC*

MW-W

MW-KW

KW-W

September

138

796

934

2.91 %

107

79

5

74

December

179

727

907

2.97 %

56

71

22

49

July 2014

167

654

821

2.68 %

64

83

45

38

*BC = Synthetic Soybean Crush
COMPARISON OF CURRENT FUTURES PRICE AND JANUARY (F) CROP REPORT LOWS – percent of Low
  Low (F)

Monday

8.26

8.27

8.28

8.29

8.30

Tuesday

9.03

9.04

9.05

CU3

592

87 %

84 %

85 %

84 %

84 %

84 %

83 %

83 %

CZ3

570

88 %

85 %

84 %

84 %

85 %

83 %

82 %

81 %

CN4

592

89 %

86 %

86 %

86 %

86 %

85 %

84 %

83 %

 

 

OU3

350

101 %

104 %

107 %

113 %

112 %

108%

108%

107%

OZ3

338

102 %

103 %

103 %

103 %

101 %

98 %

97 %

96 %

ON4

409

84 %

85 %

85 %

83 %

82 %

79 %

79 %

79 %

 

 

WU3

765

86 %

85 %

85 %

84 %

84 %

83 %

83 %

82 %

WZ3

779

86 %

85 %

85 %

84 %

84 %

83 %

83 %

82 %

WN4

775

88 %

87 %

87 %

86 %

86 %

85 %

85 %

85 %

 

 

KWU3

876

87 %

87 %

87 %

86 %

86 %

85 %

86 %

86 %

KWZ3

830

86 %

86 %

86 %

85 %

85 %

84 %

84 %

83 %

KWN4

790

91 %

90 %

90 %

89 %

90 %

89 %

89 %

88 %

 

 

MWU3

860

85 %

85 %

85 %

84 %

84 %

82 %

83 %

82 %

MWZ3

858

86 %

86 %

86 %

85 %

85 %

84 %

84 %

83 %

MWN4

890

86 %

86 %

86 %

85 %

85 %

84 %

84 %

83 %

 

 

SU3

1288

111 %

110 %

111 %

111 %

111 %

111 %

109 %

110 %

SX3

1259

110 %

109 %

109 %

109 %

108 %

110 %

107 %

109 %

SN4

1287

102 %

101 %

102 %

101 %

102 %

103 %

101 %

102 %

 

 

SMU3

369

124 %

124 %

126 %

127 %

127 %

132 %

127 %

130 %

SMZ3

353

124 %

122 %

122 %

122 %

120 %

124 %

120 %

122 %

SMN4

365

110 %

108 %

109 %

109 %

110 %

111 %

108 %

110 %

 

 

BOU3 49.81

89 %

89 %

89 %

88 %

88 %

88 %

88 %

87 %

BOZ3 49.00

92 %

91 %

91 %

90 %

90 %

90 %

90 %

89 %

BON4 49.92

91 %

91 %

92 %

90 %

91 %

90 %

90 %

89 %

 

  • +   Jan lows occurred in anticipation of bearish Production, Stocks, Winter Wheat Seeding, and WASDE reports.  Instead the Jan reports were friendlier than expected, with less than expected US stocks and tighter world carryover.
  • –  The USDA February report showed just a few changes – more wheat feeding – but was viewed as “not bullish”.  South American and US crop growing weather improved during February.
  • -/+  The feature in the USDA March report was an increase of 100 mln bu of US corn feeding offset by 75 million bushels fewer US corn exports and an additional 25 million bushels of US corn imports.
  •   The March Quarterly Stocks report was a bearish surprise with grain stocks above estimates – and corn stocks well above trade estimates forcing corn limit down.
  • -/+  The April S+D report showed World carryover for corn, beans and wheat above the high end of the analysts’ range of guesses.  US carryover didn’t increase as much as suggested by the Stocks report – with bean carryover unchanged at pipeline needs.  Cool, wet weather delayed planting and reduced HRW quality.
  •   The May S+D report showed increased South American corn production, as well as increased South American old crop corn and bean carryover as China reduced old crop imports.  US old crop bean and corn stocks continue to be exceedingly tight.  New crop US and World corn, bean and wheat carryover were larger than the average guesses.  Planting weather is erratic, and analysts expect some corn, bean and spring wheat acres to go unplanted.
  • -/+  The June S+D report showed another increase in ‘12-13 South American corn production, but a decrease in bean production.  The ‘13-14 S+D showed reduced Ukraine and Russian wheat production, as well as lower US corn production.  World wheat supplies continue to be abundant, while world corn and bean supplies are expected to become more comfortable as US new crop is harvested this fall.  In contrast, US bean supplies are expected to remain exceedingly tight.
  • +   The 6.28.13 Quarterly Stocks Report was a bullish surprise which showed less than expected corn and bean stocks with greater than expected March-May use.
  • –  The 6.28.13 Acreage Report was a bearish surprise which showed harvested corn acres up 2% from last year and up 1% for beans.  In addition, yields are expected to be much improved over last year.  Harvested wheat acres are expected to be down 7% from last year – with many less HRW and HRS acres, but many more SRW acres.  This was somewhat offset by heavy old crop HRW and HRS stocks and less abundant SRW stocks.
  • -/+   The July S+D was the most neutral report that the USDA has issued in a while, with changes mostly well within the range of guesses.  New crop US carryover for soybeans remains quite tight (but more abundant than old crop) and corn remains tight (but much more abundant than old crop), while wheat carryover is finally moving back to more normal levels (much less than the overly abundant carryover of the past several years).  Improving weather has supported new crop quality and progress, and weighed on prices.
  • +     The August S+D Report was a bullish surprise as the USDA cut yield and production estimates for US new crop corn and beans. The result was reduced US and World carryout.  Carryout as a percent of use for new crop beans dropped to 6% (-2%) – indicating exceedingly tight new crop supplies but still better than the 2012-13 C/U% of 4%.  Corn C/U% is also tight at 14 %.  Tight stocks create volatile responses to changes in the weather forecast.  Last Half August US weather turned hot and dry, and sparked a short covering rally.

 

 

 

KCG FUTURES   PM GRAIN FUTURES COMMENTS  

 

Grain futures traded at lower prices early in the session in response to weather forecasts indicating confirmation of rain events in the US Midwest over the weekend and next week.  Mid morning the weekly Drought Monitor indicated increases in the percentage of the Midwest impacted by drought (28.7% this week versus 25.1% last week) and severe drought (7% this week versus 3.7% last week), and this began to encourage short covering the beans.  The midday weather forecast lowered rainfall estimates for Midwest.  Rather that rally the entire grain futures market, traders began buying the bean complex and selling corn and wheat to reflect the magnified impact of the drier scenario on exceedingly tight beans and meal supplies.

Early in the day the SX/CZ ratio had eroded to 2.87% – well off the 2.95% recent high.  By the end of the session the bean/corn ratio was back up at new highs – closing 2.97%.  How high can this ratio go?  In 2005 the ratio topped out near 3.2%, and in 2009 it topped out near 3.4%.  On the other hand, the ratio should be under pressure as bean harvest ramps up.

The function of the market should be to shift world demand to South America from the United States.  If South American farmers plant more acres with decent weather, then the ratio should ease.  If there are continuing production issues in the US – too hot, too dry or an early end to the growing season, or there are planting issues in South America then the ratio could continue to gain.  The following chart gives some examples of various corn – bean prices at various ratios.  Note that with corn at $4, the price of beans changes 40 cents for each 0.1% change in the ratio, and at $5 corn the change in the price of beans is 50 cents per tick.  It has not been unusual to see a 0.1% swing in the bean/corn ratio during a trading session.

Beans should be close to $13.50 if corn is $4.50 and the ratio is 3%.

 

Ratio

2.5%

3.0%

3.5%

CZ

 

$4.00

 

$10.00

$12.00

$14.00

$4.50

 

$11.25

$13.50

$15.75

$5.00

 

$12.50

$15.00

$17.50

 

Tomorrow morning the USDA will release its Weekly Export Sales Report.  The pace of new crop export sales has been impressive, but unsustainable.  It will be interesting to see if the recent run up in futures prices has reduced demand.  Corn and bean basis levels have been eroding and are relatively cheap for October.  The basis for SRW barges has become exceedingly cheap, and makes me wonder if there have been cancellations.

There should also be headlines tomorrow as analysts issue their yield and production estimates for next Thursday’s USDA Supply-Demand Report.  Yesterday FC Stone indicated at 41.2 bu/acre bean yield  – close to consensus, and a 156.4 corn yield – above the 154 trade consensus.

Today’s futures trade closed the KWZ and MWZ at new low prices.  WZ traded within a penny of old lows early in the session but although closing at a new recent low it is still a nickel above season lows.  CZ closed at new recent lows – now just 15 cent above contract low.  SX rallied 30 cents off early session lows to close $2.05 above August lows.  If the US gets good weekend rains, it’s likely to see new contract lows in corn.  Good rains should also erode the bean/corn ratio.  On the other hand ….  disappointing rainfall could bring buyers in off the sidelines.

It’s interesting to note that the CU-CZ gained another couple of cents today to close near a 29 cent inverse, while the CZ-CN continued to widen and closed at a 28 cent carry – so CU13 and CN14 closed within a penny of one another.  On the other hand, the SU-SX gained a dime to close at a 55 cent inverse, and the SX-SN gained a nickel to close near a 59 cent inverse – so SU13 closed well over a dollar higher than SN14.

–       Helen Pound

 

 

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