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John Roach's DAILY GRAIN MARKETING PLAN

Overnight Trade

Dec Corn dn 3 3/4

Nov Beans dn 21 1/2

Dec Wheat dn 3

Sell Signals

The corn, bean and wheat markets’ Sell Signals continue to be in buy territory. If you need to be buying feed for a livestock operation, now is the time to accumulate some inventory.

Last Monday we gave the green light to our brokerage customers to begin liquidating corn and bean puts and we wrapped it up by Friday. Most of the puts purchased earlier in the spring were losers, but the sharply higher cash markets in June more than offset put losses. Puts bought in the last half of June were quite profitable again this year.

I am not sure it makes sense for a grain producer to re-own sold inventory at today’s prices, but if you think the crops are worse than traders realize and want to buy something, look at September call options. September call options are good until August 22nd and we should know lots more about the crop by then.

Markets

Asia-Pacific stocks closed lower across the board after yesterday’s sell-off in the US: Japan -1.46%, Hong Kong -1.89%, China -1.87%, Taiwan -3.03%, Australia -1.52%, Singapore -0.82%, South Korea -2.00%, Bombay -3..89%. The European DJ Stoxx 50 this morning is trading -0.52%

The Indian stock market fell nearly 4% after India’s central bank raised its key rate by 50 basis points to 9.0%. This hike was double the 25 basis points expected and the third rate hike in two months. Indian inflation at the wholesale level was 11.9% in July and is the reason for increasing interest rates. Pakistan’s central bank today also raised its key rate by 1 percentage point to 13% from 12%.

Rising interest rates is another reason for weakness in the DJ-AIG Commodity Index below. This index has dropped over 15% this month with nearly every sub-component losing value. From a technical point of view, the CRB-AIG index posted record highs in July and is now below its June low and threatening its May low. If the index ends the month of July below its June low, that would be a monthly key reversal on the chart. Monthly key reversals often signal a major top on the charts.

Most of the commodity index exchange traded funds have experienced sharp losses this month, but nobody knows if the losses are enough to shake investor confidence in the commodity markets. Will investors want to put more money into commodities now that they are “on sale” or will investors continue their orderly move out of commodities?

Once again the forecasts for hotter and dryer weather were not a long lasting stimulant to higher prices. Even though the corn and bean markets were still well oversold, traders could not crank up much bullish enthusiasm with crops getting better ratings and moving closer to maturity.

If you remember the 5 year average from last week’s report, 60% corn silking was normal for last Monday. The percentage of corn silking was estimated at 59% yesterday indicating that pollination is about a week behind normal. It is amazing how much the corn crop has caught up after such a slow start.

Grains are acting like they might have found a bottom, but we haven’t seen any power to the upside. Wheat was the market we expected to lead us up first and it did. But as you can see on the chart below, wheat prices bumped their head on the green line 20-day moving average and quickly sold off. That was disappointing. We believe market performance is very important around the green line and wheat prices fell quickly away from their first attempt to clear the resistance.

Duane from Minnesota asked, “In light of the market prices, are you recommending selling December puts purchased for 2008 production?”

In the spring we suggest a grower decides to use puts as insurance or an investment vehicle. During the past two years puts taken off on the July or August lows (treated as investment vehicles) have been mostly profitable but those left until harvest (treated as insurance) have been losers. Most of our customers tell us they don’t like using the puts as pure insurance and hate to lose the premium they paid. Most of our customers would like to make a profit with them or at least figure out how to get back some of the money spent when we think the time is right.

We gave the green light last week to liquidate puts for clients who had planned to treat them as an investment vehicle. For many clients the puts will post a loss this year because abnormal weather drove prices much higher during May and June than normal. However the more put contracts that were purchased in June compared to the number purchased earlier, the better the outcome.

Grain prices can certainly go lower which would make puts more valuable. But the uncertainty of corn and bean yields together with the uncertainty of the number of acres planted is very real this year. Prices could return to higher levels taking the value out of puts. We know our Sell Signal indicator is in buy territory and chose last week as the week to get out of investment puts. If you were using puts as an investment it is not too late to sell them. If you are using puts as an insurance policy, ignore all this conversation.

Will this be the year that puts used as pure insurance make money? I will tell you later. It all depends on the size of the crops. I for sure want to have money available to buy puts next spring, however.

Click here for corn state by state ratings.

Click here for state by state corn silking.

Click here for the state by state soybean ratings.

Click here for spring wheat state by state ratings.

State by State Crop Ratings Continue to Improve.

Crops are getting better with big ratings gains in Indiana, Minnesota, and South Dakota. It is unusual for crop ratings to improve this time of year, let alone improve by such a big percentage.

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. This commentary is written as a daily marketing tool to help farmers sell the grain they raise. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. Commodity trading involves the risk of loss, and you should fully understand those risks before trading.