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.
Since putting in a low mid January the May corn contract has rallied over 40 cents. Dryness in Argentina, strong export demand and short covering has fueled the rally. This has helped producers get better prices for corn than they had been expecting just a few weeks ago. However, with the US growing season approaching quickly how much gas (hopefully E85) is left in the tank for this corn rally?
As we turned the calendar to 2018 we couldn't have had a much more bearish outlook for corn. The USDA was projecting huge ending stocks, much of which was still yet to be priced by the producer. Maybe the biggest problem was that after having a less than perfect growing season last year we still ended up with a new record national average yield. This was a crushing thought that made some analysts question if we would ever need to have another weather rally again. Well.. we did but it came from Argentina.
Argentina's current growing season will likely go down as one of the driest on record. This has made a significant dent on both their corn and soybean crops. And while I have made the argument that it may not have a huge impact on our soybean exports (see previous article) it certainly could have a major impact on our corn exports. In fact we have seen corn export sales up sharply in recent weeks and the USDA has increased their corn export outlook by 300 million bushels in the last 2 months.
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To compound the issue Brazil has seen persistent rains and harvest delays significantly delay planting of their second season corn crop. This second season may not sound important, but it is by far Brazil's largest corn crop. This is adding to concern about global exports of corn and is also likely one of the reasons the US has seen larger export interest from global end users despite the USDA's reluctance to lower their Brazilian crop estimates. In reality, the USDA could still be too high on both the Argentinian and Brazilian corn crop estimates.
This has certainly been a positive factor for the corn and has allowed corn to rally over 40 cents when many thought it would be impossible to do so... (here comes the but) But, is it sustainable?
The biggest problem for the corn right now may be timing. US farmers still have a lot of corn to sell and US ending stocks are still abundant. While global end users have gotten concerned about the South American corn crops and speculative money (funds) have embraced the story, this can be an awkward time of year for a sustained corn rally. As the US gears up for planting many producers will have to make sales to free up working capital, especially with higher prices. Also, most of the current estimates are for corn acreage to remain unchanged or grow slightly.
In other words we should be optimistic about more corn coming soon unless we think there could be a weather issue coming for the US. And, this brings us to the question of a US weather market and if we should even think about adding weather premium. As I mentioned before we have seen recent years where we thought we might have a weather issue only to find out that our corn crop was good if not excellent. Last year we have some significant areas (including much of Iowa) showing up on the drought monitor and yet we produced a new record national average yield. This makes it hard to think that these days the corn crop isn't bullet proof. So it may be very difficult for the market to justify weather premium going into the US growing season.
Longer term it is hard to argue that the outlook for corn isn't getting better unless we have another monster crop this year. Low prices have grown demand to a point that any production problem could be a big problem, especially following the issues in South America. But with the US growing season quickly approaching, lots of corn still to move, and the "miracle" crop from last year making us question if corn even cares about weather could pressure corn in the near term. Probably not new lows, but maybe a healthy correction.
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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.
May Corn Daily chart:
May Soybeans Daily chart:
May 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 email@example.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.