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EHedger Report

RSS By: Dustin Johnson

Dustin works with a wide net of large producers throughout the Midwest. His analytical market approach and objective hedge strategy development is specific to the needs of every individual.

EHedger Afternoon Grain Commentary 2/12/13

Feb 12, 2013

Old crop corn and soybeans closed lower on Tuesday while new crop prices finished higher.  The bearspreading may be a sign of fund liquidation.  Barclays was rumored to be pulling out of some of its commodity holdings.  They announced today that they would be scaling back some of their programs by cutting some 3700 jobs.  Can we expect additional weakness from the withdrawal of any commodity positions held by the British Bank?  Time will tell, but this is one more short term risk to be aware of.

Livestock prices have also taken a hit from liquidation which appears to be turning political.  The USDA announced that the sequestration could result in the furlough of the USDA meat inspector.  Feeder cattle traded limit down at one point during the trading session but finished off their lows.

Yesterday’s open interest was sharply higher for corn, up by 8,691 contracts while soybean open interest was down by 328 contracts.  With open interest higher over the past few days for corn and soybeans it appears that new shorts are entering the market.  We will have more detailed information when the Commitment of Traders report is released on Friday.  For now we want to remain with our current hedge recommendations.

USDA REPORT COMMENTARY

Was the USDA report really that bearish?  The markets obviously have not reacted positively ever since the release of the WASDE estimates.  Looking at the US numbers, the market analysts were estimating corn carryout to rise to 618 million bushels which was less than the actual Feb USDA estimate of 632.  By itself this number was a little bearish for corn but then again, 632 million bushels is still a very tight carryout in our modern demand market.  Soybean carryout was estimated by analysts to be 129 million bushels, but the USDA has it at 125.  Again, 125 million bushels is a very tight carryout in the US.  The analyst carryout had wheat pegged at 727 million but the USDA estimated 691 million which is also friendly to price action.

So why the selloff?  Traditionally the USDA has been rather conservative when lowering foreign production estimates during February. The fact that they only lowered Argentine corn and soybean production by 1 million metric tons each could have led to the disappointment which triggered the market sell action.  We are seeing open interest increase suggesting new shorts entering the market rather than long liquidation.  Another thing to remember is that as time goes on, the tight world supply will turn into a more abundant situation. With a large Brazilian crop and large acres expected in the US, those back month contracts may continue to see hedge pressure hold back price.

The US Wheat estimates were rather supportive for price action but the weakness in corn and soybeans has kept a lid on prices.  Wheat is now making new lows for the move again, surpassing the January lows.  We still have to keep in mind that we are expected to come out of dormancy with the worst conditions on record.  Wheat prices may be more tied to corn now that they are nearing competitive levels for feed in the US but we will continue to monitor growing conditions for any weather related strength.

CORN STRATEGY UPDATE

Currently our official recommendations call for 30% protection in cash sales, HTAs, or futures (average price of $6.40) and 20% protection in long $5.50 December puts and short $7.00 December calls.  We would like to BUY BACK those $7.00 calls and SELL December $4.50 puts for EVEN MONEY.  What this does is remove the marginal risk of the trade (the short $7.00 calls) without spending additional premium.  It does however limit the amount of protection you will get on those $5.50 puts capping their protection to not below $4.50.  It is important to note that this trade is for those who already have the spread on AND have a healthy level of sales and insurance coverage.  To go over this strategy in AgYield, please contact us today.  Have a great week!

FEBRUARY WASDE ESTIMATES

US Carryout

Feb USDA

Estimate

Jan USDA

Corn

632

618

602

Wheat

691

727

716

Soybeans

125

129

135

       

South American Production

Feb USDA

Jan USDA

Change

Argentina - Soybeans

53

54

-1

Argentina - Corn

27

28

-1

Brazil - Soybeans

83.5

82.5

1

Brazil - Corn

72.5

71

1.5

  

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EHedger  |  866.433.4371

Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

EHedger is a premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

Trading commodity futures and options involves substantial risk of loss and may 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 market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.

 

 
 
 
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