Anything can happen in the month of December on the Chicago Board of Trade. In December, there are actually days off and some disruption of normal routines as family men working on the Chicago Board of Trade remember that there are more important things then the price of corn, soybeans and wheat.
Some days in December feature the Board being closed or having limited hours. I suspect that the advent of electronic trading, started in 2006 as an addition to pit trading, and the start of electronic-only trading in 2015 limited trading liquidity problems.
I think of this as I remember fondly my first trip to Chicago as the organizer of a 10-person jaunt in Boyd Wallbrown’s 35-foot motor home by staff and customers of Deerfield Farms of Deerfield, Ohio. Several of us who were brought up driving commercial grain trucks shared driving duties. Dean Miller took the last leg into Chicago, delivering the motor home to the driveway of a parking lot in the shadow of the Board of Trade building.
I had space reserved there, and Dean insisted I do the parallel parking in a lot that was actually lines of cars parked bumper to bumper. I agreed to do it if he and three others would stand in sight of my mirrors and direct me. The entire process involved moving a dozen cars in three different rows in three stages. Nearly 30 years later, I still remember the challenge.
All trading was then done by “open-outcry,” a bedlam of shouting and hand signals that incredibly resulted in the prices that were continuously posted.
During my years as a cash grain trader, this process changed. Early examples of computer trading replaced some of the pit trading. In 2006, the Board started side-by-side trading, with both the electronic trading and the pit trading being used to create “live” prices. In 2015, open-outcry trading was eliminated in favor of all electronic trading.
We are now more than halfway through December. Since only wheat is in the growing season, and it is dormant, fundamental news that moves the market is limited to production reports from the Southern Hemisphere and changes in some estimates contained in some monthly or quarterly reports as actual measurements are more accurate. Technical reports based upon charting (and, I have always suspected, stirring of chicken entrails) tend to dominate trading.
The December WASDE tends to be more important than a similar report from early summer. The WASDE was released Dec. 10, and the results were notable but not earth shaking.
The WASDE is a fundamental report, being the latest estimates of crops growing and stored around the world. From this report, we learned that corn prices might go up because the grain stocks are now estimated to be less than previously thought, decreasing supply. Soybeans might go down because we are finally getting good rains in Brazil, and the early crop prospects have improved, increasing supply.
Weather forecasts, another fundamental outside of government grain reports, tells us that for the period that is 8 to 14 days out, the Midwest U.S. will be warmer than normal and dry. This only marginally affects our grain prices because of the soil moisture supply to our dormant wheat. As we get into the heart of winter, the weather is more important, especially if we get too cold and freeze out wheat that has insufficient snow cover.
Traders are also looking at trading patterns in December. This week, we were told that the spec funds added 500 contracts to long positions, added 3,500 soybean contracts, shorted an additional 11,000 contracts of corn and shorted an additional 2,500 contracts of wheat. This is a reaction of funds to current market conditions, and must be respected by anyone predicting price changes.
Many specs are following trends. So, it is important to know that corn prices are being supported by the current WASDE report, and by the higher-than-normal export and ethanol demand for corn.
Corn futures have had several cycles in the last 3 1/2 months. The important technical indicator is that we have traded mostly between $4.13 and $4.52 on the March contract. We got to $4.52 1/4 Oct. 2, and we got to a high of $4.51 1/4 Dec. 11.
To a technician this means that we have “resistance” at or near $4.52, and it is a big deal if we could trade through that number. Until then, the market is limited by that number, and we may not go higher without some big fundamental reason, which is unlikely until we have another crop growing or until export demand or domestic usage surprises us.
Soybeans are having a recent downturn. We were trading the March futures at $9.88 going into Dec. 17. As recently as early November, we traded $10.55, so there has been volatility in the soybeans. In early November, we were talking about slow planting in dry conditions in Brazil, but now that idea has gone away.
The weakest look on the charts comes from the Chicago March wheat contract. Our recent high was at $6.39 Oct. 3, but we are now at $5.50 after going nearly to $5.40. The chart has shown a steady downturn. We are a long way from the $7.72-3/4 we saw at the end of May.
