THE GRAIN REPORT Tuesday, January 31, 2006 11:19 GMT Weekly Report By Alaron http://www.alaron.com
Corn We started the week’s demand side report with our weekly export inspection report showing 32.4 million bushels inspected for near term export, about unchanged from the week prior and 5 m.b. behind a year ago. Year to date inspection are 704 m.b. versus 707 a year ago. We are not much behind a year ago but ending stocks inventory are up 300 m.b. over 2005. we need better demand numbers to be bullish, probably in the 42 to 48 m.b. area weekly. Thursday’s weekly export sales report showed 2..157 million metric tons of corn was sold last week. Up 77% from the previous week and the highest number since the marketing year began September 1st. Asian sales were 1.2 m.m.t. with Japan the key player at 723 t.m.t. the high end of pre-report trade expectations were 1.4 m.m.t.. This far exceeded that but the effect of the big export number is cushioned by knowing it came east Asian feeders bought two weeks or more supplies ahead of schedule- as next week’s Asian Lunar New Year Holiday will have grain buying channels at a standstill. Ok, on Tuesday’s report I said watch out for month end short covering this week and gave 2.15 resistance as a high side goal. Our March high was on Friday at 2.206. the move through 2.15 resistance came as weather gurus Thursday and Friday moved to a warmer and drier South American consensuses through to Sunday February 5th. I have noted for several weeks on this research line, the wild card to off set our bearish supply demand scenario would be weather in Argentina and Brazil. The problem here is weather outlooks can change overnight as a jet stream twists, turns and buckles. The reports by time we get to Monday could change to wetter by the end of next week and give us a lower open. So, Friday forecasts have great risk to trade off of- Long term traders should consider buying the July 2.40 call and sell the 2.80 call for 8 cents or $400. cost and risk it gives you 40 cents profit potential through the third Friday in June and for near term downside speculation consider the March 2.15 put for 4 to 5 cents in case rain returns to South America. If the March planting intension show 2.5 to 4 million less acres to be planted as some suggest along with China moving from a exporter of corn in 2005 to an importer in 2006 along with the increased thinking of much more corn to ethanol production, the long term look to see carry over stocks coming down and supporting prices long term.
Bean Monday’s first report came as our weekly export inspection report showing 30.3 m.b. of beans were inspected for near term export up from 18.8 the week prior but well under a year ago of 40.5. Year to date inspections are 466 m.b. versus 626 a year ago. It is a nice weekly number. Now can we put together 3 or 4 weeks of good numbers. Thursday’s weekly export sales report showed 521 t.m.t. of beans were sold last week, down 59% from the previous week and 32% below our four week average. Key buyer China was in for 217 t.m.t. versus 500 the week prior and total Asian sales at 365 versus 600 t.m.t. Where the corn market benefited from total Asian sales beans rely heavily on number one world and US bean buyer china and they decided the week prior imports of 1.28 m.m.t. was enough to get through the Lunar Holiday closings. On Tuesday, I warned of short covering this week for month end with upside risk on March up to 5.88 to 5.92. the week’s short covering rally came up to 5.88 on Friday. Beans long term outlook into fall looks bleak. South American crops still look to come in well over a year ago. Early talk has the US planting 2..8 to 4 million acres more beans while demand runs behind a year ago but the near term can still push higher if weather turn and stays hot and dry in south America into March. The month of February is a key growing month and would be equal by comparison to our august here. If we come in Monday and we look hot and dry through week’s end we could see March push to 5.92 to 5.98. If we then stay dry into week two February 6th to 10th, we can see 6.06 to 6.10. Of course, a change to wetter and cooler we look for 5.50 into week two. Soy beans here will be very jumpy to Argentina and Brazil’s weather into March 1st. Bears can consider buying the March 5.70 put for 10 cents or $500. cost and risk. And or bulls can consider buying the March 5.80 call and sell the 6.10 call for 10 cents as well. The volatility of March beans due to weather influences surely will see March up to the 6.10 or down to the 5.50 area before those options expire. Of course a good option player who plays both sides or directions knows he never holds the wrong side until it expires worthless, you always get out when about a 50% loss and control your costs. Keep these thoughts in mind for February. If rain totals in South America are normal for the month. Production numbers or yields will be leading to big number over the year prior and we will look for the seasonal February break that occurs when China sees that they will find quantity there at cheaper than US prices and they begin to cancel previous US purchases and switch to Brazil as well as February bringing on much talk of increased US bean acres to be planted and showing up on our late March planting intension report and of course all the bearish thoughts fade if weather becomes bullish.
Wheat Monday began with our weekly export inspection report showing 18.7 m.b. were inspected for near term export, up from 12.6 the week prior and one million bushels over a year ago. Year to date inspections are 651 m.b. versus 698 a year ago. Thursday’s weekly export sales report showed 375 t.m.t. of wheat was sold last week, up 7% from the week prior and 18% over our four week average. We saw slight demand increases on both demand side reports which suggest recent lows before this week were a little more price friendly for exports but the weekly numbers are still historically weak numbers and our month end short covering rally puts US wheat prices over export competitors, so demand will not likely be a driving price source. We got our short covering rally I talked about on my last report Tuesday as we came in this week knowing traders had over 75 thousand short positions in hand at the CBT I had 3.31 then 3.43 as our two key resistance levels. We could visit our high into Friday was 3.504 basis March. The big question traders have this week was how much of wheat’s rally was short covering or buying back of short positions for month end profit and how much if any were crop concerns. Drought continues over our southwest winter wheat states of Texas and Oklahoma with only light wide spread showers called for through next week. Additionally as this week wound down there was talk that last week’s 5 day freezing temperatures in the Russian Ukraine may have caused significant damage and losses with world ending stocks tight. Problems in Russia and US wheat in the southwest in trouble will have to use chart signals for a sign fund money is moving to a supply side concern market and or away from a demand side pricing market. Last Friday I recommended buying the March 3.80 call on the Kansas City exchange for 12 cents or $600. Friday’s mid-session was 23 cents. It is the wheat in our southwest drought area that is delivered on KC exchange contracts. With a little more than 3 weeks life in the option you can consider taking profits and buying the May 4.00 call option for 18 cents or around $900. and hold through the beginning of when dormancy breaks in late February and key growing time in March and April. If the southwest stays dry we can put 40 cents or more on the call. Consider a put for the near term as well by buying the March CBT 3.35 put for 4 to 5 cents. You have about 3 weeks time.
Alaron Trading Corp. 822 W. Washington Blvd. Chicago IL 60607 Phone: 1-800-275-8844 Email: [email protected] Web: http://www.alaron.com
