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 dust settles after a shocking USDA report the grains were able to find some footing and bounce off the lows. The Planted Acreage and Quarterly Grain Stocks reports may have now changed the tone in grains for good. However, after the sharp declines we have seen since the report where do grains go from here?
Soybeans were sharply lower following the USDA Planted Acreage and Quarterly Grain Stocks report. In the biggest surprise of the report the USDA increased soybean acreage well more then even the highest trade guess. This now puts soybean acreage at a new record by a long shot. Old crop soybeans were not spared from the bearish report either as stocks came in well above the trade guess as well. This all amounted to a sharp drop in soybeans with the hardest hit new crop November soybeans down $1.00 in less then 24 hours. The report was not as bearish for corn as acreage came in near estimates but stocks were 128 million bushels above the trade guess. Lower corn acreage still means we will need a very good corn crop this year but larger then expected stocks could mean bigger beginning stocks going into next year and demand may not be as strong as expected. This takes some of the pressure off and prices reflected that. Wheat also was not spared from the bearishness as stocks came in as expected but acreage was larger then the trade guess.
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So, it was a bearish report (especially for soybeans) and the market reacted to it. Now that prices have come down where do we go from here? Corn and wheat already had made big moves lower so the bearish USDA report may have just been the icing on the cake. At this point US wheat is getting closer to being competitively priced and harvest pressure from the winter wheat crop could be subsiding. Corn has had good reason to see lower prices and the larger stocks number was a reflection of many analysts suggesting that feed demand was too high. So much of this could have already been factored into the corn and wheat markets. The big surprise was soybeans. Larger then expected old crop stocks take much of the tight balance sheet talk off the table and huge planted acreage figures suggest that we could be swimming in soybeans next year. However, in the case of corn, soybeans and spring wheat we still have to grow this crop.
Now that the dust has begun to settle from this report the fact remains that the harvest lows this year could now be lower then what we were thinking just days ago. Corn, wheat and especially soybeans could be looking at bigger ending stocks now. However, the key to both statements is "could". Crops are not made in June and we still need to finish out this growing season and weather will still be key in determining production and prices. So now that this report is out of the way weather may be the biggest determining factor going forward.
Crops look very good at this point, but we still have to get through the key moisture sensitive reproductive stages in corn and soybeans. While this report may have added downside potential to grains markets a weather event could change that. If there are any weather concerns that pop up in future forecasts the market may be quick to build in weather premium. With the huge soybean acreage soybeans may not be quite as sensitive, but corn needs to see record yield this year and could react sharply to any hint of a weather issue.
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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 firstname.lastname@example.org
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.