The Grains Review
For the week of January 3, 2012
By Matthew Pierce
Coming back from the New Year holiday break the market looks at a higher move based on the following factors. First, the Euro is holding ground against the USD sitting just over $1.30 to start the week. Sentiment towards a stronger Euro is growing with optimism over long term debt solutions gathering steam. Crude remains well over $100.00 basis Feb due to continued tensions between the US and Iran. This escalated over the weekend with an Iranian test of a cruise missile that would be capable of hitting a US carrier. I hope they are not that stupid to actually try. Both factors are within the recent traded range but the sentiment is more bullish today which also helped Asian markets to a higher trade. On the fundamental side traders have a rally in both Palm oil hitting 3 month highs and EU wheat which hit multi month highs. Both are following momentum garnered from the major weather story developing in Argentina and to a lesser degree Brazil. Over the previous 4 days they have seen .10-.40” of good coverage showers fall in Mato Grosso De Sol with Parana receiving .50-1.20”. South into Paraguay and Argentina the rains were far less substantial which focuses the attention of the trade. Today traders are looking at scattered rains in Parana with MGDS drying out while Argentina remains dry. Temps are moderate to warm so no obvious threat from this input. Overall the fundamental factors are supportive of a continued rally from what was started last week.
Looking back a bit I see a solid recovery all over the floor. This is due in large part to growing technical momentum and bottom picking with the commodity sector under performing compared to equities. This is supported by a jump in OI in corn on Friday with CN up over 5,000. This should continue with plenty of money sitting around looking for a “hot” home for 2012. If the money moves in markets are looking at a continued rally through the WASDE report on Jan 12. At that point they will need a fundamental backing for the rally to continue. There is growing concern over a regional conflict which should continue to add premium to crude prices. If prices spike above $120.00 there is no doubt in my mind that corn and the rest of the floor will follow. If crude backs up on world recession fears around $70.00 the Ethanol bid will disappear hammering demand which will in turn hammer corn and agricultural commodity prices. If the Euro makes any move back towards $1.40 commodities will continue their pop. If the USD makes a move approaching $1.10 then commodities will suffer as currencies cap value. The macros are a major concern moving forward so continue to focus on these inputs while making any market move.
Disclaimer: Past performance is not indicative of future results. Trading futures and options involves substantial risk of loss and is not suitable for all investors. Fundamental factors, seasonal and weather trends, daily news, and other current events may have already been factored into the markets. The use of stop loss or contingent orders may not protect profits and may not limit losses to the amount intended. Certain market conditions make it difficult or impossible to execute such orders.