Sep 17, 2014
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The Ted Spread

RSS By: Ted Seifried, AgWeb.com

Ted is the Chief Market Strategist and Vice President in charge of the Zaner Ag Hedge Group and specializes in agricultural hedging employing various strategies using futures, futures spreads, outright options and option combinations. He believes it is paramount to be able to use different strategies to adapt to market conditions. Ted works with large to mid size grain and livestock producers and end users in North, Central and South America.

Is This the Year Corn Sets a New Record Yield?

Jun 03, 2014

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 USDA is counting on corn to set a new national average yield this year for their new crop balance sheet.  Crop progress as of the 1st of June shows planting now ahead of the 5 year average and crop conditions are very good.  The corn crop is off to a good start, but how realistic is it to be expecting a new record at this point?  

The current record for the national corn yield is 164.7 which was set in 2009.  The USDA's current new crop balance sheet is assuming a 165.3 bushel per acre national average yield.  This is their trend line yield set forth in the February Baseline conference.  So how accurate have trend line estimates been?  From the mid 1990s to the mid/late 2000s trend line yield only strayed from trend line by more then 1 bushel an acre twice, in 2004 when yield was about 10 bushels an acre below trend line and in 2004 when yield was about 14 bushels an acre above trend line.  Since 2008 however, final yields have been all over the place with 4 of the last 5 years falling below trend line yield.  This could be an anomaly, or it could be the beginning of a trend where yields vary wildly like they did back in the 1980s.  This could all possibly be tied in to long term weather cycles.  

As far as weather is concerned we have certainly had our issues this year as well.  A bitterly cold and snowy winter took some time to release most of the Midwest from its frigid grasp.  Planting progress started very slow especially in the northern areas.  Rain has also been an issue with many areas not getting a chance to dry out to get into fields.  But, lately temps have gotten much better and a lot of progress has been made.  At this point we are ahead of the 5-year planting pace in corn, beans and spring wheat.  Corn conditions are very good at this point with 76% of the crop rated good to excellent.  This is tied for the second best June 1st crop rating in the last 30 years.  But a good crop rating on June 1st certainly does not guarantee record yields come harvest.  

Going forward weather forecasts look nearly ideal.  For now the 2-week forecasts look unthreatening and even the long term forecasts are friendly.  Most of the long term forecasts are looking for an El Nino cycle during the North American growing season which can produce favorable growing conditions.  Some weather analysts are comparing this year to 2009 which again was the last record national average yield for corn.  

We have awesome CRB wall charts to give out!  They are weekly bar charts that go back 10 years to Oct, 2003 and are about the size of a poster.  If you'd like one sign up here - Corn: http://www.zaner.com/offers/index.asp?page=20  

Another positive factor for corn yield is where corn acres are being planted this year.  According to the USDA prospective plantings estimates we are planting less corn this year.  The bulk of the reduction in corn acreage is coming from areas that are historically lower producing areas.  For example, North Dakota is reducing corn acreage by almost 1 million acres, maybe more after the slow planting pace.  But your historically higher yielding states like Illinois, Iowa and Indiana are staying mostly the same on corn acreage or could even be adding acres as they got of to a fast start on corn planting.  So the location of corn acres this year could help the national average yield.  

However, long term forecasts are far from reliable.  There are lots of things that could happen this year to put a dent in the expected trend line yield.  Sitting here on June 3rd it occurs to me that it may be a bit early to consider a new record national average corn yield a certainty.  Most likely there will be weather scares if not actual weather problems.  When all is said and done this corn crop could set a new record yield but it may be a bit too early to expect it.  What we maybe should expect is some weather volatility this year.  With less acreage and the USDA expecting a record yield it puts a lot of pressure on the corn crop to produce this year, any hints of weather concerns could be met with strong reactions from the market.  

Sign up for our Morning Ag Hedge newsletter!  Sign up here: http://www.zaner.com/offers/?page=17  

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.     

July Corn Daily chart:

July Soybeans Daily chart:

July 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 tseifried@zaner.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.

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