~~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 December corn has just put in it's seventh consecutive day higher there is lots of speculation swirling around the market that the low may now be in for corn. The long term fundamentals for corn are compelling, however short term fundamentals are difficult to overlook. While we are not and have not been bearish corn under $3.20, it may be a challenging time to expect the low to be in for corn.
Longer term corn will struggle to hold on to planted acreage at current prices. Corn planted acreage was already down sharply in 2014 and another reduction in acreage could result in corn production well below the pace of demand. So, we can build a strong argument that at some point corn will need to either "buy" acres with higher prices or put a premium on ending stocks to build the largest carry in possible again with higher prices. There is also very little that you can do with sub $3.50 corn that isn't profitable. Ethanol, exports and feed demand should all remain relatively strong with lower prices.
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In the short term however we are in the process of digesting record corn and soybean crops. For corn it seems extremely likely that we are looking at a record national average yield and most likely a record production figure as well. This is a lot of corn to move in a relatively short period of time and corn will be competing for storage with an also record soybean crop. To compound the issue it seems that much of these corn bushels going to market have not been sold yet and a large number of bushels will get sold off the combine which could mean more selling pressure in the market. A slow start to harvest has kept this selling pressure from overwhelming the market and spread out corn sales so far. This may keep corn prices a bit more stable, but at 17% harvested as of 10/6 there is still a lot of this crop yet to absorb.
In the long run we can see the need for corn prices to go higher to buy acreage. If corn is unsuccessful in buying acreage we can see the need for higher prices to slow demand and try to keep as large of an ending stocks number as possible to take into next year. However in the short term the overriding market driver could be the massive harvest we are just in the beginning stages of getting into. We are not looking for corn prices to go much lower. Yield reports may get less amazing as the harvest moves further North and West and we expect that local basis may do much of the work but we also think it may be premature to expect the low to be in for corn for now.
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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.