FRONTIER FUTURES, INC.
612-672-9868
www.ffutures.com
th
460N Grain Exchange Building, 301 S 4 Ave, Minneapolis, MN 55415
Thursday Aug 7th, 2008
HIGH
LOW
LAST
NET (VOLUME)
MGE (U)
856 ¾
850
856 ¾
+ 3 (109)
MWU8
RESISTANCE
RESISTANCE
SETTLE
SUPPORT
SUPPORT
50 DAY MA
100 DAY MA
909
888
853 ¾
830
700
908
939
KC (U)
812 ½
795 ½
812 ¼
+ 16 ¼ (331)
KWU8
848
836
796
789
700
863 ¾
904
WHEAT (U)
784 ¾
764 ¾
782 ¾
+ 17 (2021)
WU8
834
810
765 ¾
746 ½
700
833
865
CORN (Z)
535 ¼
523 ¼
535 ¼
+ 7 ½ (8957)
CZ8
563
535-538
527 ¾
513
484
682 ½
646
SOYBEANS (X)
1247
1222 ¼
1241
+ 19 (4188)
SX8
1330-1350
1252-1271
1222
1135-1163
1045 ¼
1473 ½
1360 ¾
GENERAL
• As of 7AM: the dollar is down .19, gold is up 6 bucks, crude is up 1.48, the S&P is down 6, and
the Dow is down 64.
• There is a new problem here that noone seems to want to admit to in the rush to electronic trading.
The problem is the electronic marketplace isn’t working so well for US ags. A set of markets like
US ags simply do not have the constant micro-equilibrium volumes that the worlds financial
markets do. The old pits relied on a good measure of information flow that could be garnered by
the professional market maker by standing there and observing the mechanics of the order flow.
All of that is absent in the electronic marketplace, leaving marketmakers in every US ag
commodity except possibly corn to the conclusion that the only way to trade on the screen is to
abandon marketmaking and “go with the days trend” instead. In other words, while the
government guys and the newspapers discuss and legislate ad nauseum on the “overspeculation”
problem, the real problem is the vacuum caused in the micro (under 2 minute) world of
commodities due to the exodus of the professional marketmaker from the industry. All moves are
overdone, because they have to be since there is noone there to take the other side. The short term
volatility is much, much higher than it was with pit trading, and probably will stay that way
forever. This is not due to “overspeculation”, its due to the lack of information flow that the new
world of screen trading has caused.
Further, we have the new world of for-profit exchanges in the US keeping fees high.
Remember back about 2000 when everyone told you ag exchange fees would be about a quarter a
round turn if only everything traded on the screen? What a laugher. The exchanges simply took
the floor broker fee for themselves, leaving everyone wondering where the cheaper rates went.
There are cheaper rates, but only for members executing their own trades. So the trading
companies and ag firms that wanted the cheaper rates have decided to pony up for the
memberships or trading rights to save costs and execute themselves. The only problem there is
those customers have never executed for themselves and are finding out that the task is not as easy
as it appeared when they called their orders in. Massive resting stops, big spread orders placed all
at once getting leaned on, and so on and so on are rampant on the screens as these new players
learn the hard way what not to do when executing their orders in the micro sense. It turns out that
it’s hard work getting volume moved in the ags. Who would have guessed. I fear the financial
fund guys will never get it when it comes to placing orders for size in the world of ag commods.
Again, all of this is causing more and more short term volatility.
The point of all this rambling is that the marketplace as we knew it for US ags is something
altogether new. Every run, whether for a day, a week, a month, or a season, is going to be faster
and farther than ever before due to screen trading. Get used to it, there simply is no going back
now and we are forever stuck with this new world. Immediate fills are nice, unfortunately they
FRONTIER FUTURES, INC.
th
460N Grain Exchange Building, 301 S 4 Ave, Minneapolis, MN 55415
612-672-9868
www.ffutures.com
appear to come at the small cost of massive slippage. The corn market will be okay for mid-size
front month trading, but soybeans are suspect even in the front month, and wheat, my friends is a
small market disaster that just happened before everyones eyes. Don’t even get me started on oats
or the soy products markets. Good luck and be careful out there because it turns out the world is
full of dogs and we’re all wearing milk-bone underwear.
WHEAT
• Tunisia is in Aug 7 for 84,000 MT of opt-origin durum and 42,000 MT of opt-origin milling wheat
for Sep-Nov shipment. Iran is in Aug 9, pushed back from Aug 2, for 100,000 MT of Kazakh
milling wheat for Oct/Nov shipment. Taiwan Flour Mills is in Aug 12 for 44,640 US mixed wheat
for Sep 10-24 shipment.
• Weekly export sales were 682,600 vs expectations of 450,000-650,000. Major buyers were Iran
141, Nigeria 133, Mexico 103, Cuba 76, and S Africa 68. Unknown cancelled 14 and Brazil
cancelled 20. Sales by class were 502 HRW, 92 SRW, 58 HRS, 25 whites, and 6 durum.
Opening call: 10-15 higher
CORN
•
•
•
CCC is in Aug 6 for 36,860 sorghum for Somalia for Aug 24-Sep 4 shipment and 43,500 sorghum
for Sudan and Somalia for Sep 5-15 shipment. Tunisia is in Aug 7 for 50,000 MT of opt-origin
feed barley for Sep-Nov shipment.
Old axiom #1 to remember: Dead cats, when dropped from astounding heights, do tend to bounce.
Old Axiom #2 to remember: When bullish commod stories make the cover of the Wall Street
Journal or your local paper, it’s time to get out of you longs. New axiom #1: When financial fund
guys start talking about “a new commodities pricing paradigm”, it’s time to get out of your longs.
With the exception of one time, 1973, commodities have always returned to their old levels and
left what is always termed a bubble behind on the charts. This is caused by the world’s incredible
capacity for finding plantable acres and the ability to create yield through larger input spending by
way of fertilizer and herbicides, genetics, and even to a degree good old fashioned hard work
always keeping up with population growth and demand. This last run will most likely now be the
new highs to shoot for when the next crisis comes, but the function of the market right now will be
to overdo what the economics of the situation calls for in pricing terms to the downside to blow
out as many index funds as possible. The trend is decidedly down, and numbers like 4.35 in CZ8
are not out of the question at all. That being said, the next few days trend is dead cat bounce.
Weekly export sales were 337,900 old crop and 718,500 new crop for a total of 1,056,400 vs
expectations of 600,000-850,000. Major buyers were Japan 506, Mexico 285, Korea 112,
Columbia 66, and Egypt 60. Unknown switched 29 to new crop. Jamaica cancelled 20 and
Venezuela cancelled 16.
Opening call: 5-10 higher
SOYBEANS
• China’s NGOIC raised its forecast for the 2008 soybean crop to 17.5 MMT, up from 16.5 the last
forecast and 12.8 last year.
• See bullet #2 in corn above with the only change being numbers like 8.50 in SX8 are not out of the
question at all, otherwise everything applies.
• Weekly export sales were 374,400 old crop and 245,200 new crop for a total of 619,600 vs
expectations of 350,000-600,000. Major buyers were China 331, Mexico 69, Cuba 64, and
Unknown 50.
Opening call: 15-25 higher
FRONTIER FUTURES, INC.
th
460N Grain Exchange Building, 301 S 4 Ave, Minneapolis, MN 55415
612-672-9868
www.ffutures.com
Scott O’Donnell
Any statement contained herein are derived from sources believed to be reliable, but are not guaranteed as to accuracy or
completeness. This is not a solicitation of any order to buy or sell by Frontier Futures, Inc. No responsibility is assumed with respect
to any such statement, nor with respect to any expression of opinion herein contained. There is a risk of loss when trading commodity
futures.