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Outlook from the CBOT Floor for April 23, 2012

04/23/2012 @ 10:47am

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Coming back from the weekend markets have a calmer opening as compared with Friday’s explosion to the upside in beansThe explosion, as I put out on Twitter, was completely based on rumors of fresh Chinese demand for beans off the PNWThough we have seen only partial confirmation this morning, basis does support the talk with the western half of the US higher than we were on Friday morningCorn and wheat lost dramatically to beans due to a lack of fresh demand rumors or any food for the bull in those commodities

Spreads were supported in beans while bearish in wheat and cornAll spreads are active but let’s focus on CU-ZThis spread has recently collapsed from 37.5 inverse to a 7.5 inverseFull carry for this spread is around 16-cents offering another 20-cents or so movement to the bear sideTraders need to consider that all the early planted corn will be delivered against the Sep contractInforma made this known on Friday stating 1 billion bushels of corn will be deliverable; I feel this is dramatically understating the issueIf 60% of IL and 50% of MO are both planted and emerged by May 1st, using a 110 day growing cycle, the dry down date is give or take August 18thThis is not even considering TN, KY, KS, OK, TX and all the other southern states with corn acreageSimply put, I think the trend is your friend here and the bear side should win this week

On the flip side of the subdued corn bullishness is the amazingly long position in meal offering downside momentumAs expected, SMK-N went out past $4.00 then traded back under overnight on more money flow issuesMeal is not a bullIt is simply benefiting from the strength in beans which is in turn slowing crushMeal demand should slacken off as other competing proteins move into rations$400.00 meal makes many feeders balk at buying especially with massive inverses and a record long fund positionAll that being said, meal will have a hard time falling until beans stallMeal is a child of beans so look for extra weakness in meal if and when beans finally break which I’m sure they will do in the next 60-daysIt’s not a revelation that I am bearish beans at current levels but the market is simply overextendedPositions wise, ratio wise and acreage wise, beans and meal are not in the right placeThis is not to say the rally will not continuePositioning against a money flow rally has hurt myself and many othersIf you want to get bearish either, look at buying extremely cheap skewed puts establishing your risk

Looking to today, beans are modestly bearish with spreads backing up the weaker toneCorn and wheat are modestly bullish with spreads supporting that toneKWN looks to gain a bit of recently lost ground to CHI with the spread sitting at a shockingly tight 14-centsMinny will lag behind both as spring plantings roll along. Meal will be the weakest commodity on the floor while bean oil tries to hold ground in oilshare

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