Heavy rains hit the Midwest

Published on: 15:13PM May 14, 2009
Heavy rains hit the Midwest as forecasted. One producer I talked to today asked if the market is not up on this amount of wet weather, what does it want? The answer is the weather outlooks are looking a little dryer. It could now be suggested while not planted at the best time possible, the corn crop will get planted by the first week of June. It will not be pretty but it will be in the ground.

While a rally around pollination could be seen if excessive dry conditions develop, the greater risk is if the market consolidates into a sideways price pattern. As the July-to-August time period develops, we actually trend lower because of the significant improvement in the crop from the road. The real concern I have for the corn market would not really start to develop until after the September USDA Supply and Demand report and the crops start getting harvested.
Remember, we are going to see two crops this year. The Western states planted early and could see a great yield and while the Central and Eastern crop could be below average. This all suggest the potential for a fall to winter rally will be very high.

IMPLICATION:  All buyers of options or short futures will have to give strong consideration to adjustment of hedge positions if we start taking out overhead resistance after the August USDA Supply and Demand report. However, even with this situation developing it does not deter us from wanting to scale up sell the corn market as we move into the June-to-July time period. I continue to suggest that all clients maintain a basic put bias. This implies some strategy for defending against upside risk exposure. In my brokerage accounts we are still rolling up our long puts but holding onto all long calls. Our preference would be to be in a long put rather than a short cash sale or short futures until we get to the end of June.

If you need any help in implementing a speculative or hedging strategy give us a call at 1-800-832-1488 or email me at [email protected] or [email protected]. Tomorrow we will talk a little about the bonds, gold and crude oil.
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