EHedger Report

It was another strong day for new crop corn as the corn-soybean ratio continues to retrace from recent highs.  December corn closed 12 cents higher at $5.50 ½, November soybeans up 4 ¼ cents at 12.89 ¾, and July wheat up 7 cents at $6.87 ½.

Most of today’ strength was concentrated in the new crop which means this move may be associated with corn-soybean spread repositioning.  It could also be large funds rolling July longs up to December corn and November soybeans.  Otherwise the weather and daily news headlines did not appear to be dramatic enough to justify today’s spread action.  Technically the July corn contract filled its gap from the March 31^st report today at $6.76 which may be the reason there was heavy resistance above that level.

July Corn Futures

Once December corn got through the 50 day moving average it quickly made its way up to the 100 day moving average as the chart below shows.

December Corn Futures Red Line = 50 Day Moving Average Blue Line = 100 Day Moving Average

Here is a chart of the new crop corn-bean ratio retracing from the highs.  This makes sense since corn acres are expected to be lower while bean acres are expected to rise on the next report.

November Soybeans/December Corn

We are staying hedged using a combination of cash sales, futures, and put spreads.  As a reminder the July CBOT options go off the board on Friday, June 21^st.  Please contact us if you would like a second opinion of your hedge protection.  Have a great week!

Corn closed the day session strong after opening rather weak on the overnight session. Old crop corn led the way higher while soybeans and wheat were mixed to lower.  July corn closed 13 ½ cents higher at $6.68 ½ while December corn was 5 ½ cents higher at $5.38 ½.  July soybeans were down 4 cents while November was down 12 ¾.  July wheat closed ¼ of a cent lower at $6.80 ½.

On Sunday night the market was touting the favorable two week weather outlook as a bearish factor for new crop corn and soybeans but the strong day session appears to have reversed this trend in corn.  Corn export inspections were almost double what they had been expecting which may have kick-started this strength.  Soybeans and wheat fell just short of expectations.

NOPA crush was higher than expected at 122.63 million bushels in May compared to 118.1 as the average market guess.  The USDA has already accounted for a higher crush estimate on the June report but crush may need to slow down a little more to meet their estimate. Domestic basis levels have remained strong especially for soybeans which could continue to support the bull-spreads while the new crop contracts remain a little overdone to the upside in our opinion.

The corn-soybean ratio retraced some of its recent strength today and we believe it has more room to drop.  I have included a chart of this spread below.  On a late planting year like this we would expect corn to hold better support compared to soybeans given the acreage swap.  This may represent a more significant turn in this spread but a lot will depend on the results of the June 28^th report.

November Soybeans/December Corn

Today’s crop progress report showed soybeans at 85% planted which is at the low end of the guesses.  This may be slightly favorable for an initial price reaction on the 7pm reopen tonight.  Corn is at 92% emerged and a good-excellent rating of 64%.  This was around what the market was guessing for conditions but it is still early in the year for this to make a significant day-day impact on price.  Soybeans were at 64% good-excellent as well.  Spring wheat conditions jumped from 62% last week to 68% this week.

We are staying hedged using a combination of cash sales, futures, and put spreads.  As a reminder the July CBOT options go off the board on Friday, June 21^st.  Please contact us if you would like a second opinion of your hedge protection. Have a great week!

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. You may not place an order to buy or sell commodity futures contract by e-mail. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees, or agents. EHedger LLC will not disclose anyone's position due to their confidential and proprietary nature. Recipients assume the risk of reliance on and indemnify and hold EHedger LLC harmless for any and all losses, costs, or tax consequences incurred as a result of their use of market information. The contents of this e-mail message and any attachments are intended solely for EHedger LLC's customers and brokers. This communication is intended to be and to remain confidential. Any duplication or distribution without the express written consent of EHedger LLC and this disclaimer is prohibited. If you are not an intended recipient of this message or if this message has been addressed to you in error, immediately alert the sender by reply e-mail and delete this message, its attachments, and any related messages from your computer and destroy any hard copies. If you are not an intended recipient or this message has been addressed to you in error, you are prohibited from delivering, distributing, disclosing, printing, copying, or relying on this message and/or any attachments. Opinions are solely those of the author and subject to change at any time, and are not a solicitation or recommendation to buy or sell commodity futures or commodity options. Past performance is not indicative of future results.

Grains and oilseeds sold off in the wake of the June WASDE report.  December corn closed 13 ¼ cents lower at $5.37 ½, November soybeans down 12 ¾ cents at $13.14 ¼, and July wheat down 13 ¾ cents at $6.83.  The report had higher US crop carryout estimates than expected but since there was no change in acres we feel this was a rather neutral report.

The monthly supply and demand reports are still released during the middle of the trading session at 11:00am which means before you can even get a glimpse of the report verbiage, the high-frequency algorithms have already processed the report and are trading accordingly.  The main thing they picked up on was a higher corn carryout than what was listed in the Dow Jones and Reuters analyst polls.  This is why we got the instant, high-volume, market slam during the first 60 seconds of the release (see chart below).  The majority of news providers had a long time lag in releasing the WASDE headlines today due to the USDA’s inability to release this very time sensitive data in an orderly manner.  Our news vendor has recommended sending a letter to the USDA to request they change the report release time to allow the market to digest the information and create a more even playing field, we agree.

1 minute chart December Corn

On closer examination of the report (which we humans got to read 10 minutes late) showed the new crop corn carryout about 150 million bushels higher than the average analyst estimate but on unchanged corn acres.  The USDA did not change any acreage estimates from the May report and seem to be set on waiting for the June acreage report before estimating an acreage loss/swap. They did however compensate by lowering the national average corn yield by 1.5 bushels to 156.5 bpa.  The next acreage report will be released on June 28^th which means the July WASDE report will show production updated including the new acreage estimates.  The USDA lowered their "Feed and Residual" estimate from 5.325 billion bushels to 5.200.  This is still about 500 million bushels more than our estimate which is why we still have a negative outlook for corn prices going into harvest.  US old crop corn carryout was 10 million bushels higher than the average analyst estimate however they lowered world carryout by over 1.6 million metric tons from expectations.

There were no changes in either old crop or new crop soybean supply and demand estimates in the US.  They did lower the world carryout to 73.69 after lowering Brazilian beginning stocks.  Wheat was probably the most surprising since they lowered world ending stocks to 181.25 while most were guessing near 185.00.  Wheat still finished sharply lower from the increase in US production estimates.

Grains and oilseeds closed higher Tuesday on heavy volume in the last minute of the session.  Both the flat price as well as the spreads had very large ranges during the last 60 sections of the day.  This may be associated with the Goldman Roll, but could also be some major orders pressing the market during the most important time of the day which is the closing settlement.  I have included 1-minute charts of November soybeans and the July-November spread below.

November Soybeans

July –November Spread

Tomorrow’s report will be the major focus of the market.  How much will acres and yield change tomorrow?  The latest Reuters poll has bean acres up 700,000 from the March 31^st report and corn acres down 1.5 million.  We don’t forecast a major yield change based on the current crop ratings but we will say any drops in production for corn could also be met with a drop in the feed estimate.  The USDA was using a feed number in May that we believe was a "compensating" number for having such excess supply.  There is no reason to believe we will see such a jump in feeding next year unless we see a sharp decline in price to bring in profitability.  So for these reasons we want to remain well hedged with a combination of insurance, sales, and options. The idea is to leave enough upside open to benefit from any market rallies as we have seen in the last five years, but hold enough protection to recieve a decent return on investment should the market break. There are too many unknowns to "know" where we end up this year.  If you would like a second opinion at your marketing plan please contact us for a complementary risk review.

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. You may not place an order to buy or sell commodity futures contract by e-mail. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees, or agents. EHedger LLC will not disclose anyone's position due to their confidential and proprietary nature. Recipients assume the risk of reliance on and indemnify and hold EHedger LLC harmless for any and all losses, costs, or tax consequences incurred as a result of their use of market information. The contents of this e-mail message and any attachments are intended solely for EHedger LLC's customers and brokers. This communication is intended to be and to remain confidential. Any duplication or distribution without the express written consent of EHedger LLC and this disclaimer is prohibited. If you are not an intended recipient of this message or if this message has been addressed to you in error, immediately alert the sender by reply e-mail and delete this message, its attachments, and any related messages from your computer and destroy any hard copies. If you are not an intended recipient or this message has been addressed to you in error, you are prohibited from delivering, distributing, disclosing, printing, copying, or relying on this message and/or any attachments. Opinions are solely those of the author and subject to change at any time, and are not a solicitation or recommendation to buy or sell commodity futures or commodity options. Past performance is not indicative of future results.

New crop corn and soybeans closed with double digit gains on Friday as many traders covered shorts ahead of the weekend.  Bear-spreading was very prevalent in both corn and soybeans before and during the Goldman Roll today.

Many longs are rolling up to the new crop contracts for timing reasons as well as concerns of lower 2013 corn and soybean production.  Our thoughts remain the same, we believe there will be some acres lost to prevent plant and some switched to soybeans but even if we lose a few million acres of corn there is still a chance for a large decline in price when it is all said and done.  In short our reasoning is based on demand and yield.  We have had three poor growing years in a row and demand has suffered.  In our opinion, the USDA’s feed demand estimate was well overstated on the last monthly Supply and Demand report in May.  By overstated we are about 700 million bushels apart. Probably the only reason the USDA used that demand number is because they were looking at such a large supply they had to offset in a reasonable manner.  Their next report will be released next Wednesday, June 12^th.  We have not yet seen the average analyst estimates polled by Reuters or Dow Jones but it will be interesting to see how much yield and acreage each firm decides to use.  These price surges have left the shorts rather skittish from taking on the risk without knowing more about the crop development. If crop conditions come in fair on Monday it could be a very different story.  We will have to see what they say on Monday afternoon at 3pm CST.   Have a great weekend!

July Corn:  Touched the 100 day moving average and filled most of the gap but couldn’t get back to $6.76.

November Soybeans: Closed at fresh highs for the move.  Not much in the way of technical resistance between here and $13.50.