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Standard Grain

RSS By: Joe Vaclavik

Joseph Vaclavik is the president at Standard Grain in Chicago. Standard Grain provides futures and options brokerage to farms, feedlots, elevators, processors, end-users and traders. Visit www.standardgrain.com for more information.

 

Friday’s USDA Report: A Guide for Producers

Aug 08, 2012

The USDA will release their August Crop Production report on Friday morning at 7:30am CST.  The report will include updated supply and demand numbers for both old-crop and new-crop corn, soybeans and wheat.

The trade believes that the USDA will cut their yield estimate for corn by another 19bpa, to 127bpa, if not more.  Most look for corn production to total near 11.02 billion bushels.  While there is much debate over the supply side of the balance sheet, less may be known about the demand side.  How much demand will be cut, and from where?  Corn has now been priced near $8.00 on the futures board for nearly a month.  
 
The demand implications of these high prices in our current economic environment remain to be seen.  A similar story is shaping up in the soybean market.  While most agree that we’re now looking at sub-40bpa national yields, much less is known about the demand side of the balance sheet. 
 
The grain markets are in uncharted waters from a standpoint of both price and supply/demand.  Even the most seasoned traders have not seen this scenario play out in the past.  These are truly unprecedented times for agriculture.
 
What should a producer do?  Many do not have a solid grip on what type of production they’ll have, and are hesitant to make sales as a result.   Despite the obvious production shortfall, we do not believe that downside in the markets can be ruled out.  This is a futures   market; the vast majority, if not all, of this year’s production shortfall has likely been priced into the market.
 
Nobody can predict with any degree of certainty where these markets are headed.  We believe that $10 corn is possible, and we believe that $6 corn is possible, given the right scenarios. 
 
Producers must shore-up their marketing ahead of this report.  Even short-dated options can help set a floor through the end of the week.  Producers should continue to roll-up PUT options in corn and soybeans, indefinitely.  If corn goes to $10, growers should own $9.50 PUTs.  If soybeans go to $25, producers should own $22 PUTs.  Take what the market gives you and be happy to have the premium paid for PUT options be a loss leader in your business.    
 
Standard Grain, Inc.
One Financial Place Suite 3990
Chicago, IL 60607

 

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