Post Nov. 9 report, grain markets follow funds, analyst says
By Tim Hannagan
PFGBest.com Grain Analyst
Thursday saw gold, silver, crude oil, stock indices all moved sharply higher while the dollar was lower. This is what I call an Inflation Storm.
It has index and trend-following funds buying across-the-board on inflationary fears. They are buying everything from cattle, hogs, grains, cocoa to sugar and attach to their inflationary investment portfolio. It makes my theory that grains will rally this week into the November 9 crop report look good, but it's an assist we couldn't have expected.
Those who bought Wednesday were greatly rewarded. Monday through Thursday saw higher grain openings as funds bought grains on outside market influence. This is a reminder that once the November 9 supply-side crop report is over, grains will have few thoughts of their own as grain gets locked up on the farm for a long winter's nap.
This leaves grains to follow the influence of the funds buying and or selling of crude, the dollar index, stocks and metals until early spring. Of course, we will have certain demand side reports that come out and weather in Brazil could end up a major supply-side driving force. But those are the unexpected events, and why we open the market every day.
Our pre-report trade estimates came out Thursday, for next Tuesday's report. The average pre-report corn production estimate was 12.545 b.b., down from 12.664 last month. The range of guesses were 12.228 and 12.685. They expect corn ending stocks come September 1, 2011 to be 840 million bushels versus 902 last month and 1.708 b.b. last season. The range goes from 608 and 1.048.
Soybean production estimates came in at 3.426 b.b., up from 3.408 last month with the range of 3.350 and 3.483. Ending stocks at 240 million bushels versus 265 last month. Clearly on beans they're saying the October harvest brought better yields than shown off the September harvest yields. But, increased production is offset by increased demand from China. So, ending stocks are lower.
The corn numbers look mildly bullish and beans mildly friendly for report day. Either way funds look to be overly fat with profits into report day, off record long held positions, setting up the market for a price correction on profit-taking after the crop report is priced in.
All the bullish talk for the long term is just that. Long-term. Funds don't know a bushel of grain from a phone booth and don't care. It's a profit creating and taking business to them. Even the shockingly bullish October report saw a 50 cent corn correction off the high, 40 cent soybean correction and 85 on wheat. These breaks came off perceptions the next report could be bullish as well so the correction was muted.
But, watch for possibly a bigger correction after this report as traders know harvest is all but complete with little fear on the next report in December. All those long into the report should take profits on report day. If there's no shockingly bullish news that extends the rally into the next day such as last month. Then go short and look for funds to trim the fat out of their profits.