Knight PM Grain Comments

PM GRAIN FUTURES COMMENTS Thursday April 4, 2013

There have been a number of factors the grain futures market needs to digest. Prices are dramatically lower than last week, and support has yet to develop. Negative impact of Fund liquidation is overwhelming grain market fundamentals.

BULLISH BEARISH

MACROS Strong dollar eroding commodity prices
Gold, silver, copper, crude oil and grains prices weak
Fund liquidation of commodity related ETFs

CORN Robust domestic cash market Weak export market
End user pricing Anticipation of South American harvest and ramping up of vessel loading in June
South American farmer trying to capture inverse Old crop supplies tight Next Wednesday’s USDA S+D report expected
to increase carryover
New crop yields expected to improve S+D
balance dramatically – See May S+D report

BEANS Strong domestic cash basis
Strong export basis South American bean harvesting and vessel loading
expected to continue to ramp up through May
Bird Flu possibilities undermining buying interest
Very tight old crop supplies Next Wednesday’s USDA S+D report is expected to
increase carryover
New crop supplies expected to
remain tight – May report

WHEAT US wheat cheaper than India, Aust,
new crop Black Sea or EU
Very tight EU stocks Abundant Indian and US stocks
FSU needs to replenish stocks Best importer, Egypt, has money problems
Slow US exports
Winter wheat harvest begins in 6-8 weeks
Tighter new crop US S+D balance Still abundant old crop US S+D balance (>30%)
(<25%) WEATHER ISSUES · US MIDWEST Cool, wet weather delays corn planting · US SOUTHERN PLAINS Less than expected rain and warmer temps increase concern for HRW yields · US DELTA Wet, cool weather delays corn planting and emergence. After a weekend of warmer, drier weather, the cool, wet regime is expected to return · NORTHERN PLAINS need more soil moisture · BRAZIL Rainfall disrupts and delays bean and corn harvest, but aids second crop corn. · ARGENTINA Drier, warmer weather returns after the weekend and allow the pace of harvest to improve · EUROPE Cool, wet weather delays spring planting · RUSSIA Variable temperatures have delayed spring fieldwork · UKRAINE Melting snow will delay spring fieldwork - Helen Pound · Historical Volatility reflects the volatility of the underlying futures · Implied Volatility reflects the volatility used in calculating the option premium · The At-The-Money Straddle is the value of the call plus the put – buying (or selling) the straddle gets a trader long (or short) volatility · Historical Volatility reflects the volatility of the underlying futures · Implied Volatility reflects the volatility used in calculating the option premium · The At-The-Money Straddle is the value of the call plus the put – buying (or selling) the straddle gets a trader long (or short) volatility Jan lows occurred in anticipation of bearish Production, Stocks, Winter Wheat Seeding, and WASDE reports. Instead the Jan reports were more friendly than expected, with less than expected US stocks and tighter world carryover. The USDA February report showed just a few changes – more wheat feeding – and 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 another 25 million bushels of US corn imports. The Quarterly Stocks report was a bearish surprise with grain stocks above estimates – and corn stocks well above trade estimates. HEADLINES 04/03 09:50a CST DJ U.S. Weekly Ethanol Production, Stockpiles Increase Slightly 04/04 03:32p CST DJ Rain Stalls Argentina Soy Harvest, But Sunshine Expected 04/04 09:27a CST DJ U.S. Soybean Futures Fall to 10-Month Low; Bird Flu Prompts Demand Concerns