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.
On Thursday CONAB (the Brazilian counterpart to the USDA) announced further cuts to the Brazilian corn crop. Initially the corn market found some support by this number, but with soybeans sharply lower corn eventually drifted back to unchanged. But, what are the longer term implications of this significant cut in estimated production?
CONAB's July estimate of the Brazilian corn crop came in at 69.1 million metric tons, 7.1 MMT lower than the June forecast. This represented the largest estimate cut CONAB has reported in over 8 years, and is now 15.6 MMT lower than the peak estimate of 84.7 MMT. This means that in the last few months the estimate for the Brazilian corn crop has dropped a little over 570 million bushels. This could be significant for US corn prices over time.
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In the mean time ideas for the US corn crop have turned to higher yields and bigger production as timely rain has fallen just as corn is getting into (or about to get into) pollination, the key moisture sensitive time frame for corn. Also, quarterly grain socks came in much higher than expected suggesting a 200 million bushel quarterlydecline in demand year over year. This has put a tremendous amount of pressure on corn prices with the December contract falling over $1 in less than 3 weeks.
However, the lower estimate for the Brazilian corn crop could help bring back some demand for US corn. For one, Brazil may be at a point where they might be looking to the US to fill some of their domestic needs. At the very least they will need to import some corn from neighboring Argentina taking more corn off the global market. The smaller Brazilian corn crop couldbode well for US exports in months to come and could go a long way to offsetting the larger than expected acreage andquarterly grain stocks.
Another interesting idea is thata sharp decline in Brazilian corn production due to late season dryness is a reminder that while the US corn crop is going through pollination in good conditions in many places there can still be an impact if weather turns hot and dry to finish the growing season. This is a little misleading however, because most of the damage done in Brazil was done to their second season corn which we do not have as much of in the US. But the fact remains that some yield potential is still at risk for the US corn crop even after pollination.
Going forward corn might have an uphill battle. After a dramatic decline in prices producers are likely looking for bounces to sell. And again, we are now moving past the period where corn is at it's highest risk for damage from hot and dry conditions. But, we will need to still have very good weather in a large part of the corn belt to hit the lofty expectations of the USDA's 168 national average yield. The corn crop lost down in Brazil could help US exports and demand so any weather issues going forward for the US growing season could be supportive for prices.
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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.Follow me on twitter @thetedspread if you like.
JulyCorn Daily chart:
JulySoybeans 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.