Market Matters Blog

Overheard at NGFA

Planting prospects, corn quality concerns, how to handle the closing of the pit trade – just a few of the conversations I overheard at this year’s National Grain and Feed Association annual convention in San Antonio. At meetings like these, some topics are hot potatoes tossed around everywhere you turn, like transportation and agriculture's revamped relationship with the Commodity Futures Trading Commission. Others are just sparks, things overheard here or there, left to smolder where they were spoken.

My notebook filled up with these little gems.

-- Any large shifts from corn to soybeans seems like they will be regional. In northwest Iowa and parts of Minnesota, one elevator manager said he could see a 3% to 7% shift away from corn this year depending on spring weather, but it will mostly come from ground that’s been in corn-on-corn production for many years. Near Aberdeen, South Dakota, one manager said farmers are asking about a variety of smaller crops like sunflowers and barley. There were some reports of wheat being ripped up in Southern Illinois. Gentlemen from the Texas panhandle said the wheat crop there is in the best shape it’s been in for the last few years, and that farmers are starting to pull their cattle off. Other parts of Texas reported increased competition from milo.

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-- Many elevator managers said they see farmers mostly sticking to their rotations unless spring weather dictates they do something else, but they also added that agronomy sales are lagging their usual pace. Sales of P and K (phosphorous and potassium) are lagging in many parts of Corn Belt, and farmers seem content to let the fertility they’ve built up in the soil during the boom years carry them through this season. They also noted farmers are purchasing more non-GMO corn seed and seed varieties with one or two fewer stacked traits to try and save on input costs. Elevators expressed concern that this could lead to lower yields.

-- Corn quality varies by region. In Nebraska, South Dakota and parts of the Northern Plains, harvest was dry and swift. Corn in those areas is coming out of the bin a little dry, but in areas like Ohio and Michigan the story couldn’t be more different. Much of the corn was put up wet, and dryers are still running. And in Missouri, the manager of one elevator said they’ve started to notice an odor on corn from storage bags. He thinks farmers have about 15 days to empty them before quality becomes a problem.

-- Farmers are still holding a lot of grain on the farm, and many of the country elevator committee board members said they think it could be as high as 50%. Many are preparing for a “second harvest,” when a new flood of grain comes to the market. In the meantime, they’re busy picking up and shipping the corn stored in ground piles before it gets too hot.

-- CME Group is sorting through the details of how to transition to an electronic-only market. NGFA’s risk management committee seemed to have two large concerns: how CME would handle certain types of market orders than can only be executed by brokers on the floor, and how they’d structure the short post-close session that allows traders to even up their books. Market-on-close orders seemed to get the most discussion. Usually a broker makes these trades as close to the close as possible, and currently, there’s no way to do it electronically. CME suggested the trade-at-settlement order type, which is commonly used in the energy markets, might be a solution. The committee responded cautiously and said CME has a lot of education to do because there are subtle differences between the order types. CME is also seeking input on how long its post-close trading session should be and what kinds of parameters it should operate under.

-- High frequency trading was as hot a topic as ever. One member of the risk management committee expressed frustration that his questions on how HFT trading affected the market have gone unanswered by the CME group. CME responded by saying it’s close to launching its “Myths Project,” which will answer many of the industry’s questions. CFTC Chairman Timothy Massad said the regulator wants to study the role HFT trading plays in the derivatives markets; however, the agency’s inadequate funding has caused long delays. In other HFT related talk, an interesting lawsuit was filed earlier this month accusing a “John Doe” HFT trading firm of spoofing the treasuries market. The suit was filed by the brokerage firm where the president of the National Futures Association works, and aims to make CME Group disclose the name of the firm that in violation. You can read more details on that case here: http://bit.ly/….

(AG\SK)

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