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.
Corn has been under significant pressure in the last three months as near ideal weather has fueled thoughts of a record yield and possibly a record crop. Since May, corn has fallen over $1.50 from highs. However, with many analysts now throwing around super sized yield estimates is there a chance we are overshooting the mark?
To date, this growing season has been near ideal for corn. Aside for some isolated flooded out acres and hail damage corn has enjoyed near green house type weather. We have seen rain when we have needed rain and there has been a good mix of mild and warm temps. Currently the corn crop is rated by the USDA at 75% good to excellent which makes this one of the best rated crops on record at this time of year (tied for 4th best ratings since 1990). While there is still time to have a weather issue or frost damage it is safe to say we are looking at a pretty good if not great corn crop.
At this point there is little question that this corn crop will be big, but the question is really how big. With the lowest planted acreage in 4 years the corn crop really needed to be above average this year to keep the balance sheet from getting tighter. There is also likely some acres that will not get harvested either because they never really got planted due to wet conditions or because they got flooded out or hailed out. So we really needed a record corn yield this year. It looks like we will get it, but by how much?
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The USDA was looking for a record yield for this corn crop from the get go. Their trendline yield of 165.3 would be a new record by .6 bushels an acre. Now, some analysts are talking about a national average corn yield over 170 bushels an acre with some as high as 174-176. I can tell you from doing the math that it might be very difficult this year to come up with a national average yield over 170 bushels an acre. While we do agree that the USDA's 165.3 seems a little low, it is difficult to justify an additional 10 bushels an acre. Every state by state model we run puts us in a range of 167.8 to 170.3 with the higher end requiring an almost perfect finish to the growing season. The difference in production between a 170 or a 174 national average yield equates to about 360 million bushels which is not exactly small change.
So, with the market currently factoring in somewhere between a 172 and 176 bushel and acre national corn yield could it be the case that we are setting up for disappointment when we get out into field to harvest? Many times things can seem better than they are and this year may be one of those times. When combines roll we very well may find that this corn crop is excellent and a new record national average yield. But, it may not be quite as big as some of the numbers being thrown around the market now. This could mean that corn prices may hit a low sometime in the next month and prices may rally though harvest. This usually only happens when the crop is not as good as expected. It is hard to say that we could be disappointed with a record national average yield this year, but at this point expectations may be getting unrealistic.
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December Corn Daily chart:
November Soybeans Daily chart:
December Wheat Daily chart:
All this means that speculators should be looking for opportunities and producers need to look to lock up some prices. Give me a call for some ideas. In particular, 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.