TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS ANDMAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.
The September 1st Quarterly Grain Stocks report is an important report becauseitrepresents beginning stocks for the current marketing year and it is a good gauge of demand.Many times this report comes in very close to expectations because by the end of a marketing year we have a good handle on where stocks should be. In this particular case we could have a more interesting report.
The marketing year for corn and beans starts on September 1st, sothese stocks represent old crop carry over and therefore new crop carry in. So, September 1st grain stocks will be the beginning stocks we have to work with for this marketing year and could have a significantimpact the balance sheet. September 1st quarterly grain stocks are also a good gauge on how strong (or weak) demand has been in the last few months which allows us to make assumptions on the overall health of demand.
To make a long story short - If September 1st grain stocks are lower than expectations it is suggesting that demand is stronger than expectations and we will have less grain to start the marketing year. On the other hand, if stocks come in higher than expected we have more grain and questions about demand to start the year. So, which ever way it goes there can be a double whammy for the market.
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In many years the Sep 1st stocks report has come in near expectations. However, I'm not sure this year will. As I sit here and do the math over and over again I am seeing something that is really concerning me. Now, before I go into what I mean by that please take this with a grain of salt. I have only used my methodology for calculating stocks for about 5 years. So far it has had a good track record, but there certainly could be something I'm missing this time around (I hope there is)... Here is what I'm seeing for soybeans, corn has a similar story but not as dramatic:
In the 4th quarter of the 2014/2015marketing year soybean disappearance was 436 million bushels, up 39% from the same period a year earlier. Now, the USDA also notes that they revised the soybean crop down 41.7 million bushels which they may do something similaron this report as well. However, when we look at the 3rd quarter soybean stocks at 870 million bushels it become very difficult to justify the USDA's current ending stocks estimate of 195 million bushels. Here is why:
If disappearance in Q4 of 2014/2015 was 436 million bushels (up 36% from the previous year) it is hard to imagine that demand was strong enough to get 2015/2016 ending stocks to 195. With June 1st stocks at 807 million bushels we would need to see disappearance at least at 550 million bushels (a new record by 26%) as well as a 62 million bushel revision lower on soybean production, or some similar combination. And, while it does seem likely that demand was at a record in Q4, it may be a stretch to think it was a new record by what could pass as a carry over in some years.
As it stands, no matter how I do the math I can not get to the USDA's 195 million bushel carry over that we saw on the September WASDE report without significantly lowering production, which I do not see. We are the highest estimates for this report and I hope there is something I am missing. We'll find out on Friday.
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Give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action. Ted Seifried - (312) 277-0113. Also, feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.Follow me on twitter @thetedspread if you like.
DecemberCorn Daily chart:
NovemberSoybeans Daily chart:
Producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
Ted Seifried (312) 277-0113 or firstname.lastname@example.org
Additional charts, studies, and more of my commentary can be found at: http://markethead.com/2.0/free_trial.asp?ap=tseifrie
Futures, options and forex trading is speculative in nature and involves substantial risk of loss. This commentary should be conveyed as a solicitation for entry into derivitives transactions. All known news and events have already been factored into the price of the underlying commodities discussed. The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.
FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION.