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.
On Wednesday the USDA will release their August WASDE report. This particular report is very important for the grains markets because it is widely anticipated that there will be some sweeping changes by the USDA in regards to yield, production and ending stocks. The trade is looking for sharp cuts in yield and therefore production numbers as well as much tighter balance sheets. But, is the trade looking for too much?
The average trade guess for corn ending stocks is 1.449 billion bushels. If realized this would be a 150 million bushel reduction in ending stocks and a much tighter balance sheet then what the USDA has previously forecast. This reduction stems mostly from the idea that the USDA will need to cut the national average yield estimate. The average trade guess for yield is 164.7 down from the USDA's current estimate of 166.8. This is based on a wet first half of the growing season followed by dryness in some areas. However, this may be a larger drop in yield and ending stocks than the USDA is comfortable with at this point. With crop conditions only slightly behind last year's record crop the USDA might be reluctant to make such aggressive cuts.
For soybeans the trade is looking for ending stocks to drop 103 million bushels to 322 million. This is based on cutting yield to 44.8 down from the USDA's current estimate of 47.8. If realized this would be almost a 25% reduction in ending stocks and would put the balance sheet in a much tighter position than what the USDA has been forecasting. However, here too crop conditions at 63% good to excellent may prevent the USDA from cutting yield and ending stocks so aggressively. Also, if the USDA does cut production they may look at lowering some demand as well.
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At the end of the day I would not be surprised if the USDA's numbers are not quite as bullish as what the trade is looking for. The average trade estimates may be closer to where we end up this year, but the USDA may not be ready to make such aggressive adjustments until after harvest. But, does that mean that we will see a bearish reaction to less bullish than expected numbers? Maybe not. Even if the report is not as bullish as expected we will very likely still be looking at numbers that are more bullish than numbers we were looking at last month. And the trade may say that the USDA is only just beginning to make their changes and that they will continue to cut yield and ending stocks. So the report will be interesting, but the reaction my be even more so. If grains can rally on less bullish than expected numbers that will certainly say something.
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Please give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action. Ted Seifried - (312) 277-0113. Also, 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. Follow me on twitter @thetedspread if you like.
Dec Corn Daily chart:
Nov Soybeans Daily chart:
Dec Wheat Daily chart:
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 [email protected]
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.