TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS 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.
This week the USDA releases the first WASDE supply/demand report we have seen in 2 months. This is a huge report because it is the first field based look into production numbers this year, and will give us a fresh look at demand after a few weeks of strong export sales. This report certainly could be bearish and send corn to new lows, however even if it does harvest lows could be just around the corner.
There is little question that this year's ending stocks for corn will be one of the biggest we have seen in a long time. The question is how big? But honestly, I am not sure it will make much difference price wise for this marketing year. From a price perspective what is the difference between a 1.7 billion bushel carry over and a 2.1 billion? In both cases we have the need to see low prices to stimulate demand but at what point is big just big?
Producers will not be very willing to sell corn at or below break even, in some cases well below break even. And, after years of good prices culminating in last summer's record prices there has been a lot of storage open going into harvest. In fact many producers have chosen to re invest back into the operation by building more storage in the last few years. Furthermore, after years of good prices most producers do not have an immediate need for cash. So, the US producer could be rather tight fisted once the initial harvest pressure is absorbed.
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Here is where we see the difference between big and big or 1.7 billion and 2.1 billion. The bigger carry over could effect prices in 2 ways. First, it could mean lower harvest lows because there could be more corn that can not be stored on farm but this would most likely be a temporary effect. Once un-stored bushels are absorbed by the market the cash market may need to firm, maybe even pretty dramatically, to get producers to sell. So even if we do have a bigger carry over number and put in a lower low, prices for most of the marketing year could be quite a bit better.
The other effect a bigger carry over number could have is pressure on next year's crop. A bigger ending stocks number for this year means a bigger beginning stocks number for next year. A 2.1+ billion bushel carry in to next year should take some pressure off of the next growing season. There will also be quite a bit less storage available for next years crop, so the bigger the carry over number the bigger the risk for much lower prices next year.
If the USDA report is bullish vs expectations the harvest low in corn may already be in. Even if this is a bearish report and corn does go down and set new lows it would likely be short lived. Now that harvest is well over 60% completed and much of the harvest pressure is absorbed it could likely mean that harvest lows will be put in during the next 2-3 weeks at the latest and they could come much quicker if they are not already in. At this point it makes sense to own Dec Puts to get through this report, but I would be looking for higher prices to sell in months to come.
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December Corn Daily chart:
January 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]
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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.
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