What Do We Make Of Friday Then?

15/11/10 -- Friday's mass stampede for the exit door saw saw the entire Chicago grains complex close at or near limit down on everything but wheat.

Before we get too carried away that wheat manged to buck the trend, front month CBOT wheat has only put in a lower close on the weekly chart twice out of the past sixteen weeks. There have only been 6 days since July 29th that have produced a lower close than Friday's finish.

In contrast CBOT corn has only closed higher than Friday's close four times this year on the weekly chart, and for beans and meal it's just once - last week. And despite a limit down close on Friday that was still soyoil's highest weekly close of the year.

On that basis it might be a little premature to be calling this a major reversal. It certainly could however be called a reminder that there will almost certainly be a sting in the tail of this latest rally to "the new normal". We just don't know how high we go first or when that is coming. Shame that.

I still don't subscribe to the theory that these prices are here to stay and have an inevitable longevity about them. There are just too many eggs in too few baskets in my opinion.

Is it just me or is the global soybean market's almost total dependence on China somewhat scary? Of the near 810TMT of 2010/11 soybean export sales announced by the USDA Friday, more than 75% was to China. For 2011/12 all 120,000 MT of sales were to China. Combined that puts 80% of US soybeans into the large Chinese basket in the corner.

Of course we are all aware that China has a large growing population and they all lie awake at night aspiring to tuck into pizza, hot dogs, burgers and a KFC. That's what all the experts tell us so it must be true, right? We just have to hope that their new-found urge for all things western doesn't include vegetarianism or dieting. And also that they do actually have the money to dine out at TFI Friday's every week.

Meanwhile we have around a third, or more, of the US corn crop currently residing in the ethanol basket over in the other corner. That particular basket has a sell by date of Dec 31st 2010 stamped on it. Don't worry about that though, the blenders tax credit is bound to get renewed in January isn't it?

Wheat? Don't worry about wheat, that's underpinned by spillover demand from the feed sector based on a third of the corn crop going into ethanol. And that's as safe as houses, we've already established that. Meanwhile livestock sector isn't exactly going from strength to strength on the back of rising feed prices. We might all be going vegetarian before too long.

Enjoy the Christmas lunch this year, it could be nut cutlets all round next time.