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Funds take profit, markets fall

11/30/2012 @ 3:26pm

Wheat finished lower as end of the month liquidation gripped the markets. Chicago led the way lower today, followed by the KC crop. This leads us to believe that the fund traders were taking profits on their long positions following the recent rally. When the fund money wants to trade wheat they usually work in the Chicago contract. The continued uncertainty about the fiscal cliff is also continuing to keep traders on edge. The fundamental wheat story continues to remain friendly as there is already talk about abandoning acres in the spring as the dryness is concerning farmers about their ability to produce anything on this land. Demand is a continued concern right now as exports have been disappointing. Egypt is seeking 60,000 tonnes of milling wheat for January. China was suggesting their wheat production could be 3 million tonnes above USDA estimates. Feed demand may also be a concern as China also is stating their corn production is 8 million tonnes above the USDA estimates. They suggest wheat production is 3 million above USDA. Canada’s wheat crop is expected to be slightly larger than recent estimates. Trade is expecting Canada’s entire crop to total 27.1 million tonnes of from the last estimate on the 4th of October. This could slow the demand for US wheat that the trade continues to feel is inevitable. Continue to look for sideways trade as demand is enough to slow wheat on rallies and dryness is enough to support us.

More World Supply, No Improvement in US Demand?: Almost all of this week’s attempt to price in US wheat production concerns have been taken off. The better production expected from non-US countries, and now some very valid concern about US exports, are issues to consider. The story at the start of this week was that US old crop would see great export demand as competitors stop exporting. So far, no significant increase in US exports has been seen.

 

Working Trade

(10/24) Sold Jan 900 call/sold Jan 900 put as a straddle for 72, risk changed to 66 from 86, objective 25.

Throughout this week we have been discussing this idea that the market was overvalued in the short term but we remain supportive for the big picture (2013). This short term issue came to head today with active cash cattle trade of $125 in Kansas. That was down from last week’s $127 in that area. We look for this weakness to continue into mid-month. Keep in mind packers are processing cattle right now with losses of $55 to $75 per head before December started. Making it clear, this is before the real procurement for the weak post-holiday demand hits. There is nothing wrong with weak cattle prices in December. It is normal and generally expected. Tonight’s chart shows the seasonal price index in the black dotted line. Prices can fall to the October level, in this year’s case that means $122. Though our purchase order for the long term supportive picture was filled a little earlier than expected we have no doubts as to the long term health in feeder and fat prices for next year. Our minimum upside targets for February and April remain $134 and $138 respectively…Rich Nelson

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