~~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.
As the trade gets ready for next Friday's October USDA World Agricultural Supply and Demand (WASDE) report we are seeing a fresh round of super-sized yield estimates from analysts. Some of these numbers represent new record yields and production to the extent that they are the largest figure ever put on paper for corn and soybeans. Early harvest reports and crop conditions have supported and fueled this argument. However, as the harvest expands further North and West will we still be finding such huge numbers?
In the last few weeks harvest has been rolling in Central and Southern Illinois, Indiana and Missouri and early yield reports are suggesting that yields for corn and soybeans are even higher then expectations. This has fueled thoughts that this huge, record crop is getting even bigger. However, these are the areas we knew were going to be the best of the best. So as harvest moves along it could be very possible that yield reports start to come in under what are now extremely lofty expectations.
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At this point we believe we do have record yield and record production numbers for corn and soybeans. However, we are currently on the lower end of trade expectations on both yield and production. We are expecting an increase in soybeans yields in coming reports to a point. With the USDA raising 2013 national average yield to 44 bu/acre it would suggest that this year's crop should be more then 2.6 bu/acre better then last years. Soybean crop conditions 19 points better in the good to excellent category year over year would suggest that either yields should see more of a year over year increase or that crop conditions are too high. It could be a combination of both, but with the good rains many areas had in August we do think that the national average soybean yield could be in the mid 47s. Our current estimate is 47.6, which is 1 bu/acre higher then the current USDA estimate.
For corn we are not expecting yield to see a dramatic increase from where the USDA currently stands. Our yield estimate is just modestly higher then the current USDA estimate, and we feel that any further increase in corn yield can be somewhat or fully offset by a decrease in acreage. Currently we are looking for an 800k acre reduction in harvested acreage. Our current estimate for national average corn yield is 173.3. Pair this with an 800k reduction in harvested acreage and production comes in just 11 million bushels below the current USDA estimate.
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The bottom line is that these big crop most likely have gotten bigger then what we were looking at for the September USDA WASDE report. But, it may be difficult to justify further increases in yield and production beyond this October USDA report. It also might be possible that as harvest progresses we may find that we have over shot the mark.
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. Also, follow me on twitter @thetedspread if that is your thing.
December Corn Daily chart:
November Soybeans Daily chart:
December Wheat Daily chart:
All this means that speculators should be looking for opportunities and producers need to look to lock up some prices. Give me a call for some ideas. In particular, 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.
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