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All Grain home brewing: The mash (part 1 of 2)
Grains Market Review on the First Week of June
Calls: On Monday traders saw a dismantling of longs with pressure seen in all commodity sectors. Weak crude, cotton, coffee, cocoa, Rapeseed and sugar all down hard. The odd thing was they were fighting the downside pressure in corn and beans with massive call spread buying seen in both about midsession. The option markets started off on the defensive with paper coming into sell 3,000 CZ 650-850 call spreads on what many considered a profit taking move. After this traders sat around trying to rally corn only to run into massive macro pressure. Paper was evident buying both CU and CZ calls while selling the CZ 670 straddles 2,000 times. In beans traders saw good interest buying the SX 15-16 cs and the 15-17 cs. After the options buying those pits died down allowing for flat price spreads come into focus with a massive amount on CN-CU and CN-CZ as well as SN-SX done on the close. In beans alone I saw over 5,000 bear spreads in the pit with another 6-7K done on the screen. In corn traders saw more pressure on CN-CU then CN-CZ after the latter lost more prior to the close. Markets are still dealing with the preparation for the Goldman roll which begins today in earnest. The last spread of real interest was the MWN-MWU which traded out to 109.25 before falling out of bed closing at 79.25. The squeeze in that market has been a blast to watch. Technically the markets took a big hit with SN trading back to the middle of the recent breakout consolidation with indicators sitting at the upper end of the range. I think this market should see more pressure than wheat following the fall to the LT support line at 739 with this offering good upside momentum to that market. In corn I saw a move back under the 50-day MA with huge support seen at the 100-day MA sitting at 712. Indicators have turned south here offering potentially more downside momentum but this could easily be played out in the fading inverses in both front end corn spreads so I will look for July to lose drastically to both Sep and Dec in the coming week.
The afternoon period brought crop progress which showed 94% of corn planted versus the average guess of 94%. Beans came in at 68% planted versus the average guess of 72%. The states of concern remaining for corn are IN, MI, ND, and OH. For beans they are IN, KY, MI, ND and OH. Spring wheat plantings came out at 79% with MT and ND the states of concern. HRW conditions showed a 1% net increase with P/VP remaining flat with HRW ratings taking a tumble in CO. Corn conditions showed a 4% increase with this having to do with the late start and farmers not really sure what shape their crop is in.
The overnight trade was supported early only to pull back on further pressure on world debt markets but do not look that much lower today as soft markets are making a mild comeback following yesterday's beat down. A weak USD is a major impact on the agricultural trade making our exports more attractive but comments from China warning against excessive USD holdings due to expected further weakness make many economies nervous. This still feels to me like a period of macro contraction with poor US economic indicators sure to shelve speculative capital.
Heading into the day session the pressure remains from crude but the USD is tanking offering a possible buoy to bulls. Softs are mixed with Sugar showing good strength against modest weakness in cotton. When will the world realize that new crop cotton is in real trouble? Outside of that the US is dominated by hot and dry weather with the Goldman roll featured today and tomorrow as the flat price trade gets set for the USDA report on Thursday morning. I will look for a two sided trade with macros still the direction while bear spreads should continue to win in my opinion. I will look at CN-CZ and SN-SX for most movement.
Beans are called 2-4 Higher looking to consolidate gains, Corn is called Mixed with July and Sep looking modestly lower while Dec is looking 2-4 Higher. Wheat is called 1-3 Lower in CHI, 3-5 Lower in KN with MWN looking 20 Lower while deferreds are looking 5-10 Lower, Meal is called 1-2 dollars Higher while bean oil is called 10-20 Higher looking to regain lost ground in oilshare.
News: Palm oil was up 33 Ringgits lower on continued liquidation of speculative capital.
EU Wheat was 3.25 Euro lower or 1.6% due to improved weather outlooks heading into the weekend for Germany and N. France. The East remains dry but chances for storms at the end of the weekend offers first relief in weeks.
China estimates corn imports at only 1.6 MMT for 11/12 versus the current IGC number at 2 MMT or more.
Open Interest: Corn +2307; Beans +1069; Wheat +2582; Meal +1382; Bean oil -252. CN lost 17K leaving 523 remaining. This is the reason for the massive moves in CN-CU and CN-CZ.
MWN-MWU collapsed again overnight and I think this should continue today as the trade has moved to the cash basis side following a suspected deal to end the futures squeeze. From what I hear, KC Wheat is being delivered at a massive discount for non PNW destination demand.
Wetness persists in the NW of the growing region stalling if not ending all hopes of planting corn, beans, oats, rapeseed, sunseed and spring wheat. The additional moisture forecasted for S. OH and into KY is a worry for beans but farmers still have a window there due to their later frost date. Heat is no longer an issue with excessive heat starting to hurt the Delta with LA and S. AR under heavy heat stress early in the season.
LATE SALES: 823 TMT US CORN TO MEXICO; 549 TMT 11/12 and 274 TMT 12/13. NO OLD CROP.
MACROS: Are mixed but looking to improve with the trend higher in crude as I write.
Gold is trading .90 Lower sitting at 1545.90.
Crude is trading .26 Lower sitting at 98.76 as of 8:25 CST.
The Euro is .0089 Higher sitting at 1.4665 against the USD.
The Yen is .08 Higher against the USD trading at 80.16.
July Cotton is trading 2.03 Lower trading at 153.60.
July Sugar is .53 Higher sitting at 24.12.
Daily Wisdom: Computers make it easier to do a lot of things, but most of the things they make it easier to do don't need to be done. - Andy Rooney
There is risk of loss in all commodities trading. Losses can exceed your account size and/or margin requirements. Commodities trading can be extremely risky and is not for everyone. Some option strategies have unlimited risk. Educate yourself on the risks and rewards of such investing prior to trading.
About the Author
Matthew Pierce,
Grains Guru of Pitguru. Trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. Learn basic knowledge of forex trading.
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