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Intro to Trading the Grain Market

01/01/2013 7:00 am EST


Daniel Gramza

President, Gramza Capital Management, Inc.

Dan Gramza explains the basics of trading the grain markets for newbies.

I’m here talking to Dan Gramza about something I’ve been wanting you to teach me about.  I’m interested in the grain market, but frankly I don’t know anything about it.  I know you traveled and toured the exchange 30 years ago.

Right, right.

You go way back in this.

Yeah, I do a bit.

You can actually tour the exchange at one point.

That’s right, and if you look at some of the characteristics, let’s talk about that point. For example, let’s talk about Minneapolis Grain Exchange.  People always think about the Chicago Board of Trade, which is important. If you look at soybeans, corn, wheat, that’s where a lot of that product moved.  But If you talk about wheat, you need to include the Minneapolis Grain Exchange, as well as, the Kansas City Board of Trade as well, but Minneapolis. 

Here’s what I remember, Rob.  At the Minneapolis Exchange, going back 30 years, they had a couple of things that fascinated me.  One, they would actually physically look at the grain, in this case wheat; that was their product.  So, they had these large windows on the side and those large windows weren’t there just to get a view to the outside, it was for natural light.  They had these tables set up, and they had what they called a thief and the thief they would put into the railroad car and pull it out.  They’d get a sample of that wheat in that car.

And you’d look at the product?

And they’d put it in a pan, a pan about maybe six or seven inches in diameter, about an inch high; a pie pan.  They’d put that in there and then the traders in the room under natural light could view that product line.  That would give them one way to assess the wheat that came out of that railroad car that may be part of a delivery process that they’re going to look at.

That’s amazing.

It is amazing.

That’s absolutely amazing.

We’re not doing that so much today when we go around the world. But that is the process that was used.

What do you think about the grain markets now?  Is the world food supply dwindling as I keep hearing?  I mean, this is something I’m really interested in and I’m sure that people who come to these Expos and watch these videos, I mean, are we really running out of these food resources?

Well, actually no, we’re not.  When it comes to the grains, here are a couple of things you and I want to keep I mind that we look at how much was left from last year, the carry-out is the term they use.  How much do we have left?  How much do we have in the ground?  How much have we produced and what is our demand?

If our demand is this much, we have this much carry-out, and we produce this much, we’ll meet demand.  Right now, that’s the debate Rob.  You’re on target there.  Do we have enough globally to meet demand?  In the United States, at the beginning of the year they said my gosh, we have planted more corn than we have ever planted.  Holy Toledo, we’re going to have a lot of corn.  We had some weather patterns this year.

It’s a long distance between planting, as you know, and harvesting and getting the actually yield.  Now as that happens, as we finish up, something else happens, which is what we’re seeing in the markets right now and that is South America.  Brazil and Argentina primarily, those are the second largest producing areas for soybeans and corn.

They’ve had good moisture when they planted their products this year.  In January and February, they’re going to start harvesting those and then we can see.  Right now, they’re looking at record yields, but we still have some issues in terms of production.  If you look at wheat, if you look at China, if you look at the Ukraine, Canada, Australia, those countries have had a very difficult time this year for wheat.  I think that’s the one that may lead the complex.  Right now, supplies seem to be high so the pressure is to the downside.  I’m cautious on the downside.  Where I sell these market ETFs, do I want to stay short?  I want to be a little cautious about that because I think we have the potential for another push back to the upside.

It looks my Lucky Charms and Honey Nut Cheerios are safe for another year.

I think for a little while.

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