TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS 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.
Recent strength in grains has been tied to strong export sales numbers. Wheat and Soybeans in particular have been pulled up off of lows in recent weeks largely due to strong export demand. But, as we look into the numbers we see that there is a bit of a difference between what is going on in the wheat compared to corn and soybeans.
Export sales numbers are up across the board in the grains. Record high prices last year served well to ration export demand in corn and wheat while soybeans still saw a strong pace of sales. A good amount of the soybeans sales however got pushed back into the current marketing year due to high prices. This highlights a very important point - export sales are not the same as export shipments.
Export sales are a commitment from another country to buy US grain during a certain marketing year. As we saw last year in the soybeans, sales do not always equate to shipments however. Many times countries will play the export sales game (we are looking directly at you China). You see, countries will make a purchase to be shipped at a later date with the idea that they have a price locked in case prices go up. However, if prices go down many times countries will cancel or defer shipments. So, as the system goes countries can hedge their needs and cancel the hedge if prices get better for them. This hardly seems fair, but it seems we employ little recourse to dissuade the largest buyers of US grain to do such things.
CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=tseifrie
So, it seems logical that in the absence of a current USDA balance sheet other countries could be locking in prices in case the next USDA balance sheet, due out November 8th, is bullish and prices go higher. And, the timing is right, typically prices hit lows during harvest and it is also typical to see a flurry of export sales this time of year. It certainly also seems possible however that if the USDA report is bearish and prices go down there will be a lot of canceled sales or at least a lot of sales left on the books that will not get filled and eventually get pushed into the next marketing year or beyond. Really, the deal is not done until the grain leaves the port. Here is where the difference between export sales and export shipments becomes so important.
For wheat, export sales are up sharply from last year. Currently total export commitments for wheat are at 704.8 million bushels compared to 490.9 million at this time last year. This is well over a 20% increase from year over year. Buying is linked to a poor South American crop and other issues with world production. Brazil is the world's 3rd largest wheat importer and usually fills the majority of its needs from neighboring countries, particularly Argentina. With many South American acres shifting to high priced row crops and with production issues Brazil is being forced to look elsewhere to fill their needs and the US is a good place to start. If you look at the breakdown of sales vs shipments you will see that of the 704.8 million bushels of wheat sold for the current marketing year 505.2 million bushels have been shipped. This means that sales are being made and shipments quickly follow. This is how a strong export market is supposed to look, and it means that there is a real need for the grain that was sold.
If we look at the same numbers for corn and soybeans we see a bit of a different picture, especially in soybeans. For corn sales are also sharply higher then this time last year as would be expected with lower prices and bigger supplies. Currently we have sold 629 million bushels of corn compared to 410 million bushels this time last year. However, of the 629 million bushels of corn sold so far this marketing year shipments have only totaled 91.9 million bushels. This leaves the vast majority of this years sales still unshipped, 537.1 million to be exact. To me this seems like countries are buying corn in case the price goes up, but waiting to see if prices go down and if they do sales will get deferred or canceled.
If we look at the soybeans we see very impressive export sales numbers, 1.01 Billion (with a b) bushels of soybeans have been sold for this marketing year compared to 880 million at this time last year. Now, some of this is bushels that we actually sold for last year but got switched into this year but these are very strong export sales numbers none the less. In fact, current sales of 1.01 billion bushels are not far off the USDA target for the entire year of 1.37 billion bushels according to the September USDA report, and we have a lot of marketing year left. But, if we look at the sales numbers compared to the shipments numbers we see something interesting if not shocking. Of the 1.01 billion bushels of soybeans sold for the current marketing year, only 66.8 million bushels have actually been shipped leaving 943.1 million bushles open. This is lower then the 118.7 million bushels that had been shipped by this time last year even though this years sales are sharply higher.
Sign up for our Morning Ag Comments: http://www.zaner.com/offers/?page=17
Now, some of this can be explained for the row crops by saying that harvest is well behind the normal pace this year. And, for corn at 39% harvested as of last week this could be part of the answer. But with soybeans 63% harvested at the end of last week this does not seem to be the case. It really seems that global buyers are making purchases of US soybeans in case prices go up. It seems it is a hedge against the next USDA report and South America's growing season. If the USDA report shows better then expected production and pushes prices lower we would expect to see some soybean sales canceled of pushed back. If South America has a decent crop we could see a lot more sales either switched to South America or deferred or just canceled all together. It seems that countries are hedging their needs which is producing big sales numbers and getting the market excited, but it may be too early to celebrate as we have seen many times with these guys that the deal is not done until the grain is shipped.
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.
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 firstname.lastname@example.org
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.