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May 2014 Archive for The Grain Report

RSS By: Sean Lusk, AgWeb.com

Market updates from Walsh Trading.

Corn, Seasonally turns up after Memorial Day

May 28, 2014

 By Sean Lusk, Director of Walsh Commercial Hedging Services

Contact Sean
312-957-8103 or 888-391-7894
slusk@walshtrading.com

Taking a look a closer look at corn, its numbers remain supportive.

USDA Data

Tuesday’s inspection report, a gauge of demand showed 45.7 million bushels were inspected to be shipped.  Anything over 40 million bushels is bullish as it keeps corn exports ahead of USDA projections. Last month’s USDA crop report raised exports and lowered our ending stocks for the fifth consecutive month, showing a stronger demand pace and talk of lower stocks on the June report.

Monday’s planting progress came in at 88 percent complete versus 73 percent last week and right at the five-year average. Key Midwest producers read like this: Illinois 95%, Indiana 87%, Iowa 96%, Missouri 97%, and Nebraska 97%.

On next Tuesday’s crop progress report the national average should read over 95%.  Then the psychology changes on weather. It's no longer weather and its impact on planting but weathers impact on emergence and eventual production.

Corn And Memorial Day

To date a warmer drier outlook meant a faster planting pace and lower prices. After this week, it’s bullish as timely rain is needed for good development. Seasonally corn turns up after the Memorial Day holiday. Support on September corn is 4.58 with resistance 4.90. Any move down towards 4.60 should be bought as that would be the worst case scenario before the crop is made.

Trading Levels

The close for September corn came in on Tuesday came in at 4.66 1/4.  For a longer term position trade I propose the following.  If futures trade down to 4.60 basis September, look at buying the September Corn 520 call and sell the Sep Corn 600 call for a purchase price of 6 cents or a $300.00 risk. The maximum profit on the trade is $4,000.00, if both strikes finish in the money at the time of expiration minus the cost of the spread and all commissions and fees. The risk on the trade is the price paid for the option spread plus all, commissions and fees.

 

LuskMay28.JPG
 

Webinar

For those interested in grains, Walsh Tracing’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. If you cannot attend live, a recording will be sent to your email upon signup.

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.

 

Tim Hannagan's Weekly Grain Report

May 20, 2014

 This is Tim Hannagan it's Tuesday, May 20. Looking back on corn, its numbers remain supportive. Monday’s inspection report, a gauge of demand showed 41 million bushels were inspected to be shipped.  Anything over 40 million bushels is bullish as it keeps corn exports ahead of USDA projections. Last month’s USDA crop report raised exports and lowered our ending stocks for the fifth consecutive month, showing a stronger demand pace and talk of lower stocks on the June report. Monday’s planting progress came in at 73% complete. Key Midwest producers read like this. Illinois 84%, Indiana 72%, Iowa 84%, Missouri 92%, and Nebraska 91%. On next Tuesday’s crop progress report these states will climb over 90% planted. Then the psychology changes on weather. It's no longer weather and its impact on planting but weathers impact on emergence and eventual production. To date a warmer drier outlook meant a faster planting pace and lower prices. After Tuesday, it’s bullish as timely rain is needed for good development. Just a reminder a holiday is coming up with markets closed Monday. Seasonally corn turns up after the Memorial Day holiday. Support on July corn is 4.58 with resistance 4.90. Any move down towards 4.60 should be bought as that would be the worst case scenario before the crop is made. Wheat psychology may be changing as well. Monday’s condition report showed 29% of the crop in good to excellent condition, down for the fourth consecutive week and the lowest since April 7.  This is all due to lack of rain in the Western plains wheat states. Yet, the July futures hit a low of 5.62 Monday, 80 cents off the 10 day prior high. With harvest starting in early June, this could be a sign funds are done buying crop decay. Drought starts out bullish then turned bearish to pricing. Wheat’s grown for human consumption with the processing of pastas, breads, and snack cakes. When the crop has a high rating, everyone wants it. When ratings are low demand is weak, with much of the wheat suitable only for the feed ration at low cash bids. Wheat also forces more corn into the feed ration due to its price to wheat two dollars cheaper per bushel. Big inventories in Europe are cheaper to the U.S. leaving the U.S. a third or fourth port of origin for wheat.  July wheat resistance is 6.90 with major support 6.65. A close under and 6.44 is next.

 

  Tim Hannagan

  Grain Analyst

  Walsh Trading

  thannagan@walshtrading.com

  888 - 391 - 7894

  312 - 957 - 8108

Join My Mailing List

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS. 

Ag Outlook: Kansas/Chicago Wheat Trade by Sean Lusk

May 07, 2014

It is my belief after watching price action in wheat that an opportunity may be coming for a spread trade between Kansas City Wheat and Chicago Wheat. 

View From The Fields

A crop tour of key producing states took place last week with no surprising results. Oklahoma wheat yields were estimated at 18.5 bushels per acre. That compares to 31 bushels per acre last year. Production is estimated at 66.5 million bushels down from 105 last year with 55% of Oklahoma was rated in severe drought conditions as of April 22. 

The number one winter wheat producing state Kansas, has estimated production at 260 million bushels, down 18% from last year and 72% of the state is in severe drought conditions. Yields were estimated at 35.1 bushels per acre compared to 43.8 last year. Plants are considered short with fewer kernels. This led to the spread, long Kansas City wheat short Chicago Board of Trade wheat which expanded again this week. This has been mentioned on our Thursday 3 p.m. webinar several times that buying Kansas City selling Chicago Board of Trade wheat was a viable spread as long as the drought continues.

Harvest Begins Soon

However the spread has about run its course as harvest should start to begin in the Southwest late May, that's when traders will begin to sell Kansas City and buy Chicago Board of Trade.  Reasons are we are pricing Kansas City wheat higher now because of drought conditions amid lower production. 

But as harvest gets underway the low quality wheat suitable only for the feed ration will drive the U.S. to a number two or three port of origin in the world to buy wheat from. The number one exporting country will be whoever produces the highest quality. Traders will begin to buy Chicago Board of Trade wheat as the quality of that wheat is much higher with proteins up higher as well. That's where the demand is going to be. A Russian/Ukrainian War might exacerbate this condition as well.

The Trade

Depending on one’s appetite for risk, I would look to buy Chicago Wheat and sell the Kansas City Wheat at a spread price of 1.10 or better Kansas City over basis July Futures. This spread has gone parabolic over the past few weeks (see chart) and for the aforementioned reasons is possibly due for a correction. I would risk 20 cents on the spread if filled at $1.10 putting a stop in at $1.30, risking $1,000.00 on the trade plus all commissions and fees. A more conservative version of this trade would be to trade mini contracts of this spread which are one fifth the tick size. If one were to trade two mini’s using the aforementioned levels, the risk on the trade is $400.00 plus all commissions and fees. 

KansasChicago Wheat

Webinar

For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday* at 3:00 PM central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. If you cannot attend live, a recording will be sent to your email upon signup. Or please contact me at anytime at slusk@walshtrading.com. If you would like to recieve weekly invitations to our weekly webinars, please Subscribe to our list and select webinar sign-ups and recordings. *Please note that this week's webinar has been rescheduled for next Thursday, May 15th.*    

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.

The Grain Report by Tim Hannagan 5/2/2014

May 02, 2014

This is Tim Hannagan it's Friday, May 2nd. Let's address wheat first. A crop tour of key producing states took place this week with no surprising results. Oklahoma wheat yields were estimated at 18.5 bushels per acre. That compares to 31 bushels per acre last year. Production is estimated at 66.5 million bushels down from 105 last year with 55% of Oklahoma was rated in severe drought conditions as of April 22. Number one winter wheat producing state Kansas, has estimated production at 260 million bushels, down 18% from last year and 72% of the state is in severe drought conditions. Yields were estimated at 35.1 bushels per acre compared to 43.8 last year. Plants are considered short with fewer kernels .This led to the spread, long Kansas City wheat short Chicago Board of Trade wheat which expanded again this week. I have mentioned on this report and my Thursday 3 PM webinar several times that buying Kansas City selling Chicago Board of Trade wheat was a viable spread as long as the drought continues. However the spread has about run its course as harvest should start to begin in the Southwest late May, that's when traders will begin to sell Kansas City and buy Chicago Board of Trade. Reasons are we are pricing Kansas City wheat higher now because of drought conditions amid lower production. But as harvest gets underway the low quality wheat suitable only for the feed ration will drive the U.S. to a number two or three port of origin in the world to buy wheat from. The number one exporting country will be whoever produces the highest quality. Traders will begin to buy Chicago Board of Trade wheat as the quality of that wheat is much higher with proteins up higher as well. That's where the demand is going to be. Support for July lies at 6.88 with resistance 7.24.  A close over 7.24 and 7.55 is next.

Corn is 90% weather versus its impact against planting. After a wet week, this week, we see drier and warmer temperatures through to next Wednesday. This looks to allow for a big jump in corn planting as farmers are anxious to finish corn and get that much more profitable beans which is always planted last. Corn was 8 cents lower today in anticipation of the planting window opening up the next five days. Look for corn to open up lower Sunday night into Monday with a possible move to 4.92 basis July futures, at which point I would be a buyer. Look for Tuesday to bring short covering as traders get ready for the next rain event and planting delays starting Thursday into the weekend. Additionally next Friday is the monthly USDA crop production report. Traders will be buying on thinking the report will raise exports and lower ending stocks for the fifth consecutive month. Support on July futures is 4.92 then 4.78 with resistance at 5.04.
 

Tim Hannagan is Senior Grain Analyst at Walsh Trading. You can reach him direct at 312.957.8108, toll free at 888.391.7894 or via email at thannagan@walshtrading.com
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