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Rich Nelson: Quake makes the trade nervous

03/11/2011 @ 3:16pm

Wheat Commentary 


Fundamental Support:  The wheat market continued its downward slide today. That makes 5 lower closes in a row for those of you keeping track. For the week, the Chicago wheat closed 118 3/4 and it was the lowest close for this contract month since December 1st. This market was pressured all week by multiple negative forces. Fears about Middle East unrest spreading into Saudi Arabia has speculators liquidating positions in attempts to reduce risk. The USDA threw a curveball at the trade and raised the ending stocks by 25 million bushels on Thursday’s WASDE report. Then the bearish news was piled on with the major earthquake that hit Japan overnight. This news had pushed the market 36 3/4 lower at one time last night. We ended up settling the market 21 3/4 lower for the day.



The trade is nervous about how the earthquake will affect the demand for wheat by Japan. They are the worlds 5th largest importer of wheat. They are the number two buyer of U.S. wheat. They have purchased 3.387 million tonnes this year, 988,800 tonnes have yet to be shipped. It will take some time to see how much damage might have been done to the counties infrastructure and how this might affect imports. The other question that we will need to have answered is how much grain might have been damaged by the tsunami. On the weather front, there are still no new rain events advertised for the wheat belt the next week to ten days. This could be supportive to the market when the fear liquidation finally subsides.
Direction: The charts are looking worse by the day. Most contract months have taken out the long term uptrend lines as well as the 100 day moving average. The negative charts combined with the bearish fundamental news from the USDA yesterday and the fear based selling from today will keep the pressure on the market. We will need a real production problem here or in China to turn the trend back up. With normal spring rains, Allendale projects the July contract to test the 689 level.

Jim McCormick


Working trades

  • Stand Aside  
 There is a risk of loss when trading futures and options contracts.

Cattle Commentary

Live Cattle: Cattle faired pretty well today. Morning action was dominated by Japan news. However, as we noted in this morning’s comments, they are not as big in beef as they are in our pork. Japan took only 15% of our 2010 beef exports. Also, the cattle market is riding on its own high right now due to this week’s cash. We have made it clear the third week in March is typically the peak here in prices. Feedlot style slaughter posts the tightest numbers next week.

February Placement Levels: Next Friday we have the monthly Cattle on Feed report. The biggest discussion point will be February Placements. Placements were +6% in November, +17% in December, and +4% in January compared with the previous year. We all know the available calf and feeder supply is dwindling and Placements will soon fall to below last year levels. Once it does fall it will easily remain below last year levels for six to eight months straight. The only question here is how February fits in. Will we get one more month of higher Placements? Big profits of $140 per head were averaged on outgoing cattle last month. Typically, that makes cattle feeders happy to replace them with new numbers. Or, did the 55 cent rally in corn compared with January and $3 rise in feeder cattle act as a solid deterrent? We will release our take on this issue on Monday. Cattle placed in February will be marketed to packing plants, and therefore impact price, from July through early October. 

Supply through June: As you can surmise from the comments posted above, we already have the supply flow through June set in stone. Cattle to be slaughtered through June are already in feedlots. As it stands now slaughter levels will go from 3% higher, as is current, and end up to around 8% higher in June. Noted in previous commentaries, summer is the higher supply time of the year anyway.
Direction: Bulls are likely in control through next week. That should change by the end of the month.

Rich Nelson

Working Trade:

  • (01/26) Sold December 110 put 3.50, risk to 3.30, objective 0. Closed 1.97.
  • (02/23) Bought June 114 put/sold 120 call/sold 106 put -.22 (22 cent credit), risk to -2.22, objective +6.50. Closed -.35.
  • (03/01) Bought December/sold June 5.17, risk 3.17, objective 10.17. Closed 4.10.


There is a risk of loss when trading futures and options contracts.

Rich Nelson 

Hypothetical performance results have many inherent limitations, some of which are described below.  No representation is being made that any account will achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.  One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.  In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading.  For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results.  There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.