By Matthew Pierce
Friday saw a choppy lower session with both corn and beans following the script gravitating back to the highest open interest strikes at $5.60 and $12.00. This kept most of the trade subdued throughout the session with nothing exciting on the fundamental side to direct interest ahead of the weekend. There was little expected so the trade allowed options to dictate the pace. Over the weekend I saw 4364 of the SX 12.00 calls exercised with 226 puts abandoned…a good move in hindsight. In corn I saw 3016 calls exercised and 5568 puts. The puts were thought to have futures against them. These were the only two features with all other floor commodities showing only marginal interest in Nov. The overnight session was dictated by macro factors with the USD taking another dive following nothing coming out of the G20 meeting. Crude is up on extreme food oil demand with palm screaming higher making 2 year highs. Chinese markets were higher as well helping the corrective upside sentiment. The day session looks to open in line or stronger than the overnight with support from the Euro, Chinese demand, Aussie weather and now talk of standing water delaying plantings in the SW of the US HRW region.
Today’s calls are as follows: Beans are called 15-20 Higher looking at the contract high at 1235 (SF) as the first bull target. Corn is called 10-12 Higher looking to go above Friday’s high with last week’s high at 579 ½ the first upside target with the contract high at 588 offering a second level this week. Indicators remain in the upper end of the range but are still below the contract highs. Wheat is called 7-10 Higher looking to achieve the 50-day MA sitting at 702 ½ this week. Meal is called 2-3 dollars Higher looking at last week’s contract high at 340.20 as the only target. Bean oil is called 130-150 Higher leading the way on the floor looking to achieve the 50% weekly retracement level at 49.77.
Concerning weather: Weekend rains were far greater than expected in the SW region of the US with many areas that needed rains receiving them for HRW plantings. This system moved slowly across the Midwest with all harvest activity stalled. This should ease the record rate seen for this year’s harvest allowing time to catch up with the markets. There is some talk of too much rain in areas of N. TX, NE OK and SE KS but this is not a major factor yet. The benefit of the overall rains outweighs the spotty standing water. The above map shows a bearish forecast with only the far NE corner of the Corn Belt still looking at any rains to stall harvest. Looking at Australian weather, the NW’s opportunity for rain is stunted today as compared with Friday’s forecast. The forecasted rains have been pushed off to this weekend with fading confidence in the overall impact this will have. Without these rains Aussie NW production will fall to less than 50% of last year’s crop. China is looking at a very cold forecast possibly damaging their recently planted winter grain crops with wheat a serious concern. This is a short lived situation but one that deserves watching due to wheat corn relationship spread levels.
Looking ahead at this week I see commodity demand as the major factor. Chinese demand in particular is the focal point of the trade with continued rumors floating all over the trade that a major corn deal is in the works. This only enhances the availability of profit in long option and volatility plays heading into Month End. I expect to see more and more OI hitting the trade as moving into Nov due to profit potential versus a staggering US equity picture. The retail sector looks to suffer even though estimates are above last year. The 5-year trend remains low and slow not offering any incentive to join the party. On the other hand, commodities continue to gain in open interest; commodities have a real supply and demand story coupled with massive world currency issues. This train is just warming up for all late comers.
***chart courtesy Gecko Software’s Track n’ Trade Pro
Past performance is not necessarily indicative of future results.
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