News that the CME Group will acquire the Kansas City Board of Trade barely made a ripple in the commodity news. Very few media reports mentioned it and even fewer producers and traders care.
I have done several media interviews for radio and print media and no one even asked about the acquisition.
Under the terms of the transaction, CME Group will pay $126 million in cash for KCBT.
In addition, KCBT will make a special distribution of excess cash to members concurrent with closing.
CME Group has committed to maintain a committee consisting of KCBT market participants to advise on HRW wheat contract terms and conditions for at least three years, and to maintain the historic KCBT trading floor in Kansas City for a period of at least six months.
Fact is, there really is no reason to keep the KCBT open any longer. It was formed to provide a platform for wheat producers in the Plains and end users an open platform to exchange their wheat. With the advent of electronic trading, the open outcry trading of the KCBT has become nearly non-existent.
The Minneapolis Grain Exchange closed its open out cry trading platform years ago. No doubt, after the obligatory six-month period has ended, the CME Group will close the KCBT trading pits as well.
The consolidation of trading exchanges began several years ago when the Chicago Board of Trade and the Chicago Mercantile Exchange consolidated, forming the CME Group. Since then, we have also seen the closure of the Winnipeg Commodity Exchange, the deregulation of the Canadian Wheat Board and the consolidation of the NYMEX and the ICE in New York.
Invariably, the MGEX should be the next exchange to be acquired by the CME. Because it’s enjoying a resurgence in trading volume, it may make it a more likely acquisition target.
Consolidation is a natural part of our society. We see it in all industries and areas of our culture, from school consolidations to the number of farms decreasing in the United States.
This change is inevitable. In the long run it hurts the consumer as there are fewer competitors and fewer choices for the consumer.
Corn closed the week $.01 3/4 higher. Last week, private exporters did not report any private sales.
Corn looks to fall into a trading range as supply issues are well known and the demand puzzle moves to the front of pricing. The lack of exportable corn demand looks to cap rallies while the downside should be limited with lack of supply due to the summer drought keeping the basis tight in most regions.
Strategy and outlook: Producers are now 80 percent of 2012/13 crop and are also 40 percnet sold of the 2013/14 crop.
Soybeans closed the week $.34 1/2 higher from last week. Last week private exporters reported a sale of
25,000 metric tons of U.S. soybean oil to China.
Prices will need to close above weekly resistance of $15.71 to confirm seasonal lows are in place. This was previous support that was broken and will serve as resistance on rally attempts. Weather in South America will become a dominant feature of the market pricing as the market already has heard of record acreage being planted.
Strategy and outlook: Producers are 80 percent sold of the 2012/13 production and are 40 percnet sold of 2013/14.
LIVE CATTLE ANALYSIS
Live cattle ended the week $.17 higher, while feeder cattle ended $1.35 higher.
The futures market finished with losses last week despite the steady cash trade as futures had anticipated better cash business. Supplies of cattle could increase slightly into November and December, but the latest COF report indicates supplies will remain tighter compared to a year ago, since placements were down sharply compared to expectations.
This indicates there should be limited downside risk for December through April futures and producers should carry risk in the cash market for now.
Strategy and outlook: Producers currently have no hedges in place.
LEAN HOGS ANALYSIS
Lean hogs closed the week $1.15 lower. The average Iowa-Minnesota hog weight for last week was estimated at 272.8 pounds versus 271.7 lbs the previous week and 273.5 lbs last year. Hog futures are enjoying a modest recovery during the month of October as the cash market has led the rally after being featured in the retail sector
during pork month.
Cash should continue to be the driver of the market with deferred contracts nearing previous highs as the market is anticipating the current liquidation phase will result in new contract highs for the deferred months.
This should result in new highs before hedging pressure limits the gains.
Strategy and outlook: Producers have sold 50 percent of February at $85.85. Sell 50 percent of December at $84.75; 50 percnet of April at $91.50.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien. He can be contacted at 605-660-1155.
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