Can Corn Weather the Perfect Storm?
Jun 14, 2018
TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS ANDMAY 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.
Corn has come under a significant amount of pressure for a number of reasons. Good crop conditions and a non-threatening near term forecast, a reversal higher in the US$ index and trade concerns have all played a role in the decline. Lately however geopolitics have taken center stage. With trade wars brewing on multiple fronts how will this end?
So far this growing season has been nearly ideal for the majority of the corn crop with 77% of the crop in good to excellent condition. This is 10% higher than last year, a year we set a record national average yield. And, while there is a significant amount of heat in the short term forecast for the Midwest it is also not without rain. This leaves the trade considering yield potentials much higher than the USDA's current estimate of 174 bu/acre.
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Rising interest rates in the US while the ECB signals it will keep rates unchanged has also provided strength to the US$ index. A stronger US$ makes US exports less attractive on the global market as well as keeps inflationary concerns at bay domestically. An outside reversal higher day on Wednesday puts the US$ Index right back to recent highs and could find follow through to the upside.
The stronger $US may be coming at a very inopportune time as well as President Trump is spearheading trade disputes with the US's largest agricultural buyers. Late Thursday news broke that Trump plans to announce on Friday that he intends to proceed with $50b in tariffs on China, a move that will likely bring swift and significant retaliation on US soybean and corn products. At the same time there is growing concern that Mexico is considering tariffs on US corn and soybeans and would use this as their second wave of retaliation.
These factors have all culminated in a nearly 50 cent break in the July corn contract in less than 3 weeks. The large speculators in particular have gone running for the doors. The uncertainty of the future of our trade relationships and our exports may be the most negative factor at this point. On Tuesday the USDA released a fairly friendly outlook for new crop corn and soybean ending stocks but this is being largely discounted by the trade as export estimates (and therefore ending stocks) can only be taken with a grain of salt.
Climate of Fear
While it is hard to say how much or the good conditions/weather, higher US$ and trade uncertainty has been factored into the market it would seem that it could be difficult to find strength in a climate of fear. When all is said and done the trade tiff(s) may be resolved before any major damage occurs to our exports leaving little impact on the USDA's balance sheets.
Any announcement of resolution could be met with significant enthusiasm. If the trade were given reason to believe the current USDA estimates are accurate there could be significant upside potential, but it is hard to get the market excited which such an important factor looming. In the long run I am still optimistic that corn prices could be significantly higher, but it may get worse before it gets better.
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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.Find me on twitter - @thetedspread
JulyCorn 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 firstname.lastname@example.org
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