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Did the USDA Sink Corn?

Published on: 00:27AM Apr 10, 2019

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.

Tuesday the USDA released the April World Agricultural Supply and Demand Estimates (WASDE) report. For corn it was a mostly bearish report as the market seemed to expect. With ending stocks back over the 2 billion bushel mark corn supplies are ample if not a little overbearing. Where do we go from here?

On the March 29th Quarterly Grain Stocks report the USDA found that corn stocks were 270 million bushels higher than expectations. We knew that some of this would find its way to the overall final anticipated stocks of corn in the form of lower demand. We also knew that lately ethanol and export demand has looked especially weak compared to expectations.

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In the WASDE report the USDA saw fit to lower feed/residual demand by 80 million bushels, lower export demand by 75 million bushels and lower corn used for ethanol demand by 50 million bushels. This added 200 million bushels on to the projected ending stocks for corn. So, of the 270 million bushel higher 2nd quarter stocks 200 Mb are projected to make it to the final stocks number. This would suggest that demand will need to pick up for the second half of the marketing year or further increases to the ending stocks estimate may be warranted.

The big changes made on the April WASDE may satisfy the USDA for now as they get ready to produce the first WASDE estimate for the new crop which we will see in May. With the worst of the news maybe out of the way for now, a record large fund short position and some interesting weather potentially threatening planting corn may have just found a near term bottom. A short covering rally could create some opportunities for producers to sell at higher prices.

Longer term I am worried about corn. As I have been saying, big crops in South America coupled with a significant SA currency advantage could lead to significantly less export market shar for the US starting now. At the same time the EPA is breaking the law and destroying ethanol demand by undermining the Renewable Fuels Standard. If we can not get some positive demand news we could still end up with significantly higher stocks. Also, with increased acreage (or even steady acreage) we may overproduce corn yet again barring any major crop damage.

Yes, there are scenarios where the outlook can change dramatically for corn - Weather problem, a favorable trade deal with China, renewed ethanol demand... But, if nothing changes prices could still be (much?) worse in the fall. It seems to me that that marketing could be a very important part of a farming operation this year. Locking in prices while managing to keep some upside potential is what we are trying to do.

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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 

March Corn 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 tseifried@zaner.com

Additional charts, studies, and more of my commentary can be found at: http://markethead.com/2.0/free_trial.asp?ap=tseifrie

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.