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Where did the Bullish Reaction in Corn Come From?

Published on: 22:33PM Sep 11, 2015

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.       

For the September USDA WASE report the trade was looking for the USDA to lower corn yield a little more than 2 bushels an acre.  The USDA did lower corn yield, but only 1.3 bushels an acre, less than trade expectations.  However, corn was still able to manage an almost 13 cent rally after quickly making new daily lows.  Why did corn have a bullish reaction to a seemingly bearish yield estimate?

While the USDA's September yield estimate for corn was less of a reduction than the trade had expected it was still a reduction nonetheless. This could be signaling that this is a trend where the USDA is now going to lower corn yield even further on subsequent reports.  And, while the corn yield estimate came in higher than expectations the more important number - new crop carry over - declined more than expectations.  This is where the bullish reaction likely came from.

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The trade was looking for the new crop corn carry over to come in at just over 1.6 billion bushels and the USDA pegged it at 1.592.  This represents a fairly substantial reduction from where the USDA was at last month at 1.713 billion bushels.  Most of this reduction came from the old crop corn carry over (or beginning stocks) meaning that there will be less of last year's crop to take into the new year.  this is bullish for corn because it suggests that corn demand is stronger than expected and also could suggest that strong corn demand could carry over into the next marketing season.

At the end of the day the market read this report as bullish with yield numbers beginning to come down and demand staying relatively constant.  This could be the recipe for even smaller corn stocks in the future.  However, the time frame is something to consider as we gear up for harvest.  While most of the trade thinks that corn yields could be lower (maybe substantially lower)  than the USDA's estimate there may still be a lot of cash corn sold in the coming weeks and this could add some pressure to the market.  Longer term the corn outlook may be getting more positive on a few levels, but harvest pressure could keep things volatile in the near term.

We have some complimentary 2015 commodity reference calendars available.  They are a little bigger than pocket sized and very useful if you follow markets.  You can sign up for yours here (Shipping to the US only)- http://www.zaner.com/offers/calendar.asp

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 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

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.