Allendale Wrap-Up 12/21/2009
Corn: There were few surprises in store for the corn market today. Slow trade was expected and that is exactly what we saw. Front month March corn had a volume of 64,000, 90,000 would be normal. There was a lack of fresh news on the corn as well so following the outside markets could also be expected. With crude starting the day higher and the dollar calm, corn actually surprised us by starting 7¢ higher. As the day went on we saw corn trade almost perfectly in step with changes in both crude and the dollar. Crude was trading about 80¢ lower on the grain close and the dollar was nearly a quarter point higher. This translated to corn ending just about 2¢ higher. Since Oct. 13, the corn has been stuck in a range that is between $4.20 and $3.80 in March. Today saw a settle just off the dead middle price of $4.00.
Government reports, like the weekly Export Inspections and Crop Progress, were put on hold today due to the snow storm. That made it a pretty slow news day. Given those type of inputs it is not much of a shock to see corn trade dead in the middle of the range prepared to go either way. One thing that is certain is that should corn find a bounce to the resistance level, hedging should be active. Without news or trading volume it would be unlikely to see trading outside a very well established range. Low volume this week can translate into volatility so if buying opportunities near support or selling chances near resistance occur, either should be done aggressively. All corn needs to do is show us direction and we will make a trade. Right in the middle at $4.00 will keep us, and the rest of the market, very quiet. Keep in mind you cannot "push" a trade. Often you have to work with what a market gives you.
Soybeans: For the last few days the bean market has made lower moves on only moderate volume. Today it made a similar move on very low volume. March beans saw a volume of only 33,000. The next two weeks may see continued low volume. This can sometimes set the stage for big price moves. One thing to watch out for is if this low volume selling hits a fund stop level. There is nowhere near the volume on the buy side needed to offset even a single sell stop order by the funds. If stops are to be found in March beans, a popular estimate would be the 100-day moving average at $9.91. Right now the main problem with going short this market is the fact that selling has all been light volume and could find a bounce at any time. On the other hand if this low volume selling continues, eventually finding the fund stops, selling opportunities will have passed us by. This light volume selling can take charge this week because there are no major support levels to stop the slide until the 100-day moving average. One way to be either long or short this market and take on less potential risk during this time of low volume is to put on a March/November spread. If fund stops are found, it is likely that selling will be much more aggressive in nearby months than deferred months. This will mean that if we sell March and buy November, March is likely to outpace November to the downside. This is all for half the margin requirement of a futures. This is a lower risk, lower margin way to still participate in a potential volatile market this week.
Wheat: As was talked about in the beans, in regards to the 100-day moving average, wheat has broken that line now making it resistance rather than support. This market is still technically oversold and is due for a bounce but we would expect that buying to be short lived. As if we were not cautious enough trading the wheat, it was also the lowest volume trade today with the front month Chicago March trading just 18,000 contracts. We will stay with our sell recommendation in case it was not filled today, being the high of the day, and watch it closely.
Ryan Ettner is a registered broker and grain analyst at Allendale, Inc. in McHenry, IL. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com