Markets closed down hard behind fund liquidation and technical selling; even a slight increase in producer selling as some advisors put out sell signals after our markets failed to hold some chart support.
Corn was off 19 cents, beans were down 39 cents, KC wheat was off 17, MPLS wheat was down 13, CBOT wheat was off 17, crude off over a dollar, equities weaker with the DOW down 44 points, and the US dollar was firmer.
Just a horrible day for the grains; the bad thing is no real news behind the melt down. Rather just a session of Risk-Off, we do have harvest happening with overall what one would say as better then expected yields, month end, quarter end, and the big USDA report on Friday that each of the last couple of years has been very bearish but also marked the lows. Part of the reason for all of the risk off is just the simple fact that the funds own plenty of grain.
Basis is defensive for the row crops; buyers just don’t seem to be interested as many just have no bids. Now I don’t know that demand isn’t there; I think we just have momentum going one direction and the buyers sense that so they are pulling away; like they probably should and just like producers do when the markets are going the other direction. Now when we bounce or how high we bounce is partially dependent on whether some end users are scaling in; using a little risk management practicing and cost averaging as we go down. This statement is probably more for sunflowers then it really is for corn and beans; as the fundamentals for both corn and beans still don’t support a long term price break; the fundamental supply and demand both say that we really need to curb a little demand and ECON 101 tells us that lower prices don’t curb demand rather they add to demand.
Another question we really need to ask our self is are yield really that much better than expected? If the answer is yes and we also have a lot more supply then what we have thought for the past several months then perhaps our markets are fair priced or even expensive? I don’t know the answer to this; my gut says that longer term we have some upside in our markets; but I still think we have rather good and very profitable prices that need to have the risk managed.
Watch the report on Friday and hope that if it is bearish it will be the start of a sell the rumor; but the news. But bottom line we are going to need to find some demand or a good headline if we want to get the fund back interested. Money flow trumps supply most days and right now money is heading to the sidelines.
Technically the charts have done some damage and have really opened up more downside potential. But at the same time they are very overdone and due for a bounce.
Once in a while we talk about what to sell and what to store. The corn wheat spread has widened back out; to where it now makes sense to look at selling a wheat and perhaps holding corn; at least they are not par like they were a few months ago.
One other thing that is quickly getting out of whack is sunflowers – millet. From what I know I don’t think people will buy at par; at par they will buy sunflowers. Now we have sunflowers under millet; longer term I think that is bullish sunflowers; but at the end of the day we still need overall demand and right now that industry is slow.
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