Monday In the Grains
Apr 16, 2012
Tomorrow's USDA crop condition reports for wheat and planting progress for corn will garner a large amount of attention. Talk in the trade is the USDA will show close to 20% of the US corn acres already in the ground, some thinking the data may show estimates as high as 25% planted at this juncture. That would be a substantial jump form the 7% reported just last week and the 7% average most generally reported for this time of the year. This quick pace to planting would certainly give the "bears" something to cheer about.
The Goldman Roll is now behind us and the market will need to decide if the front month (May) is as attractive today as it was a couple of weeks ago. I continue to stay long the CK vs. CN from around even money, with hopes it can move to a $0.20 cent plus premium. I am keeping a close eye on it as the board seems a little uncertain about near-term strength in global demand (worry that Chinese corn demand may start to shift to Brazil). I would have thought last week's larger than expected old crop export sales and Chinese buying rumors would have done more to excite the trade. Remember, regardless of what we might think, the markets are always right.
Producers that still need to move "old crop" corn may start to soon see the window of opportunity fading. In my opinion, the smartest play would be to aggressively move old crop cash bushels now while the basis is still strengthening. You can also use the recent break in prices on the board to build some re-ownership strategies that will cover you through the summer months should we move higher. I am not a huge fan of the July vs Dec bull spreads, as I believe there are better opportunities with less overall risk out there. My thoughts are you should get with your advisor and look for some type of bull call spread or outright call options that can provide you with some additional upside returns but maintain limited downside exposure. Just at a quick glance you can pick up good old fashioned $7 July corn calls for less than $0.08 cents right now (I'll try and provide some more ideas in our "marketing update " this afternoon). My fear is that with an early planted crop the basis may start to fall apart while you are waiting on that magic $7 number. Yes, there is a chance we may eventually see the July corn contract reach a $7 price tag, but if the basis falls apart in the process, then net-net you really didn't gain anything. My guess is we may still have another $0.15 to $0.20 cents of downside movement as the "old crop" contracts test the mid-Jan and late-March technical lows. Moving the bushels now, taking advantage of the strengthening basis, and re-owning the board on the break sounds like the winning combination from my perspective. Also keep in mind, if price do move higher there is a very strong possibility the "volatility" on the board could make a big jump and drastically increase your cost of "re-ownership."
New crop corn, still seems to be anyone's guess. The trade is entirely hinging its bets on upcoming US weather conditions, as prices are being forecast anywhere between $4.20 and $8.20 just depending on who you ask or who you are following. Most all seem to be in agreement that with close to 96 million corn acres going in the ground, and if we can achieve a 164 type national yield, we will be swimming in a "sea of corn." On the flip side, with the USDA yield forecast being highly questioned and very extremely abnormal US winter weather conditions, nothing can be entirely ruled out as of yet. Be patient even though we may continue to see more downside pressure early this week on improved growing conditions and a record fast planting pace in this afternoon's report.
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather. I know as a producer, you may have questions as to how this pertains to your farm and your marketing. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow." Just click here -