Futures Commentary – May 4th, 2012

Positive action in the grain market early in the week was struck down by a broad commodity sell-off Wednesday, spurred lower by projections for a larger than expected winter wheat crop. Field scouts from the winter wheat crop tour pegged Kansas yields at 53.6 bushels per acre on day one of the tour, up from 40 bushels per acre on day one of last year’s tour.

Following wheat lower on Wednesday was the soybean market which posted July contract highs at 1512 ½ before closing the day down 16 cents at 1485. This was viewed as a key reversal by technical analysts, as new contract highs were followed by sharp selling and a settlement price lower than the previous day’s low. With managed money holding a record net long position in soybeans, any major profit taking by the funds will add substantial selling pressure to this soybean market.

Dominating market chatter this week wasn’t price action, but the CME Group’s decision to expand trading hours for the grain complex. These markets will now trade electronically 22 hours a day, with a 2 hour break between 4:00 and 6:00 PM CST, Monday through Friday. Open outcry hours will remain the same, and there will still be a settlement made around 1:15 PM CST on contracts. This move was in response to the ICE exchange’s decision to introduce grain contracts that are pegged off of existing CBOT (CME) contracts, and would trade 22 hours a day. This was a business move made by the CME group to remain competitive, and there are good arguments on both sides of the fence whether this is a good or a bad move for the markets and ultimately, price discovery in the grains.

Supporters argue that weather conditions and demand factors do not stop when the markets close, so to effectively manage price risk market participants need nearly round the clock access to the futures market. Detractors will say that this is just a move to capture market volume, and further removes grain futures from open outcry transactions. The bottom line for producers is that this move has large implications for managing price risk, especially on USDA report days when these reports will be released during market hours. Instead of having hours to digest the figures in the WASDE or Crop Progress reports, now the fastest finger will be able to capture any market moves following the report.

The ability to access these markets around the clock is more important than ever as we enter a new era of electronic grain trading. Grain Hedge clients have direct market access and can place their own orders any time the markets trade, all for $7 commissions per side. If you would like to take a look at what Grain Hedge can offer your operation, give us a call at 877-472-4607.