USDA News: Pre-Report Positioning in the Grain Markets

Published on: 17:07PM Oct 08, 2014

USDA News: Pre-Report Positioning in Grains
by Sean Lusk
October 8, 2014

Both corn and soybeans have started the week off higher but look to finish the week with profit taking and a possible return to near term lows by the weekend.   Corn and soybeans do not look to put in their seasonal lows before the October 10WASDE report.

Harvest Low

But after the report and before month end we look to post new contract lows which should be a harvest low. The market will then return to demand side fundamentals for direction. 

The post harvest rally should be exciting as China looks to again draw down U.S. carryover soybean stocks below 100 million bushels before the next harvest.  Ethanol producers, corn sweetener companies, and exporters all look to be very aggressive buyers of corn after having to pay up big time for cash corn as farmers held on to the majority of the crop unwilling to sell cheaply.  On farm stocks currently are 462 million bushels up 68% from last year.  Clearly a message that farmers will sell soybeans out of the field as they harvest and only sell the corn needed, choosing to store the majority of the crop and wait for higher prices. 

Soy Crop Outlook

The U.S. soybean crop condition rating rose 1% to 73% good to excellent condition this week which made the 2014 crop the highest rated crop on record for the first week of October. U.S. corn condition ratings held steady at 74% Good to excellent. The ability of the U.S. corn and soy crops to hold their historical high crop ratings well into harvest bemoans the big yields that are being cut. However just 17 percent of the U.S. corn and 20 percent of the soybean crops have been harvested, which are below five and ten year averages. Remember rule of thumb is we don’t usually see our harvest low until the crop is 35 percent harvested.

Trade Ideas

I therefore propose the following trades. I propose buying the November soybean 9.00 put for seven cents which in cash value would cost $350.00. The risk on the trade is the price paid for the option plus all commissions and fees.  Secondly I would also purchase the December Corn 330 put for seven cents as well. The risk on this trade is the price paid for the options plus all commissions and fees. It is my belief that traders should use this week’s short covering rally in both corn and soybeans as an opportunity to re- short the market.

Webinar

For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. If you cannot attend live, a recording will be sent to your email upon signup.

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.