For traders who have concern on Grains, today we view the Grains Review for the week of May 3rd, 2010 by Pitguru.
"Friday saw a good fight to the upside with late buying helping the overall sentiment heading into the weekend. There was little fundamental news with continued talk of Chinese demand helping but the pop was due to month end buying especially in corn as proved by big gains in OI. Selling of ATM volatility in corn and wheat is en vogue with the trade feeling we are range bound. This is another reason to look at OTM calls and puts with the trade getting too complacent in my eyes. We have yet to get this crop in the ground and we are already counting the chickens. The international situation with the Euro is bearish this morning with weakness seen helping the USD start the month. Crude is slightly higher with renewed talk that we could see $100.00 crude due to stricter drilling regulations following the Gulf spill. The current bill for the spill is estimated at 14 billion. The overnight continued the strength in corn with beans flagging due to concerns over Chinese fiscal policy and talk of deferred shipments out of S. America. The day session looks to open in line or a bit weaker than the overnights due to strength in the USD with minimal fundamental factors to look at starting May.

In options the market saw good selling of WN and WU straddles and strangles on Friday with the trade feeling a move over $6.00 or under $4.50 is unlikely. I have to agree and with ATM volatility still at 31% in Sep there is meat on the bone. On the other hand I would be a buyer of CN call spreads with a steep slope available to sell. ATM vol is sitting at 31% in July showing a nice recovery into the end of last week. The weekly low was around 28%. Buying SN volatility at 19% seems attractive though many have gotten their teeth kicked in trying this. With only a limited slope looking at buying straddles or ATM calls for best return possibilities. Buying BON at 19% versus SMN at 23.75 is a good way to add upside potential to any share plays. Overall options remain stagnant but there is growing upside sentiment in corn as seen with the slope. Paper has been a big fan of CN 400 and 420 calls with these plays heavily in the money to start the new month.

Overall I am looking for a choppy start to the week with limited fundamental information to counter the messy macros situation. I am a fan of the upside for many reasons the biggest is everyone’s too complacent. I’m not against the trend for no reason. Chinese demand points to a changing scenario over there with their corn remaining well over $7.00 per bushel. Their feed industry does not stand a chance at current level making corn imports a growing concern. The Ethanol Mandate is coming whether we admit it or not. Once that is enacted out new crop carryout will be under 1.0 billion again making corn supply an issue moving forward even if it’s not at this point. I like bear spreads in meal, corn and beans. Upside calls in beans and call spreads in corn. Favor the upside to start the week but to not get married to longs with any strength in the USD or weakness in crude hammering weak length as the week progresses."