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.
Going into the June 30th Planted Acreage and Quarterly Grain Stocks report the market was focused on the acreage numbers and stocks seemed to be an afterthought. For Soybeans the acreage number in fact proved to be the market mover. For corn however acreage played a part in the reaction but the bigger deal may have been the Quarterly Grain Stocks Number.
Most analysts were looking for a decline in corn acreage compared to the 93.6 million acres reported on the March Planting Intentions report. Reasons such as better soybean prices, pressure from bankers and wet conditions in the delta were the argument. On the June Planted Acreage report the USDA pinned the corn planted acreage at 94.14 million acres. While this is certainly not bullish for the corn market it only adds a little over100 million bushels to the production number given the USDA's trend line yield of 168 bushels an acre.
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The Quarterly Grain Stocks number came in about 200 million bushels higher than the average trade guess and represents a 200 million bushel decline in demand during the same quarter year over year. This may havea significantimpact on corn going forward and here is why: The higher than expected stocks number suggests that feed demand is not as strong for corn as the USDA has previously suggested. This will likely add at least 100 million bushels (maybe twice that) to the old crop carry over and therefore add beginning stocks to the new crop carry over. Furthermore this seriously questions the USDA's current new crop feed estimate. As of the June WASDE report the USDA had feed demand increasing 300 million bushels year over year and this report makes that seem highly unlikely.
So, if we begin to start tweaking the new crop balance sheet to reflect the Planted Acreage numbers we should be adding a little over100 million bushels due to higher acreage. Then we need to add about 120 million acres (conservatively) to new crop beginning stocks due to less old crop demand and higher ending stocks. Finally we can assume a stair step approach in lowering new crop feed demand by 100 mullion bushels. By the time we are done we have added about 320 million bushels to the new crop carry over pushing it well above 2.3 billion bushels. This may be the largest corn carry over estimate we have seen.
However, while this is a much more bearish picture going forward than some had hoped for there are still factors that may make the corn balance sheet tighter in the future. For one, yield will still be very important. While this corn crop is still very well rated at 75% good to excellent there is still a lot of time left this growing season to shave bushels off of the USDA's 168 national average yield if we were to return to a hot and dry weather pattern which some weather forecasters believe will happen. Secondly, something could change in the wheat market either domestically or abroad. If wheat prices needed to go higher corn may be able to win back some of the lost feed demand that apparently had been taken by cheap feed wheat. Thirdly, now that corn prices have come down sharply off their highs demand may start to build again.
While the June 30th Planted Acreage and Quarterly Grain Stocks report was bearish for corn weather is still an important factor in determining yield and therefore price. While corn acres were higher than many had expected the QGS numbers may have been the more negative numbers. Either way they both added more of a cushion for a weather issue this year, but that cushion only goes so far. Given the volatility we have seen in the markets during this growing season so far it could still be a wild ride between now and when we have this crop harvested.
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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.
JulyCorn Daily chart:
JulySoybeans 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 email@example.com
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.