EHedger Afternoon Grain Commentary 2/22/13
Feb 22, 2013
Soybeans closed sharply lower Friday erasing some of the week’s gains. March corn closed $14.61 ¼ which was 26 ½ cents lower on the day but still 36 ¾ cents higher for the week! Today’s range was especially volatile since we traded all the way up to $15.16 ½ last night before closing below yesterday’s lows. You can see the reversal on the chart below closing just above the 200 day moving average.
Why the turnaround in soybeans? The rumors of old crop soybean sales to China were floating all week and today’s sale announcements were disappointing. Weekly old crop soybean sales were negative 119,500 and the 8:00 USDA sale announcements showed only 1 cargo of old crop sold. They did announce 350,000 MTs of new crop soybeans sold but the market was not impressed. Front month soybeans suffered the largest setbacks but also had the largest gains on the week.
Wheat and corn sales both topped expectations as the cheaper prices are starting to attract new business. Still the grains had a hard time holding support especially when soybeans are trading 28 lower on the day. It is important to note that today’s Commitment of Traders Report revealed the "managed money" reduced their net long positions by 61,060 contracts, 37,300 of which were fresh shorts entering the market! They reduced their net long position by 7,215 contracts. These numbers are as of Tuesday, February 19th.
The corn-wheat spread settled at a new high of -24 ¾ cents which may continue to lock corn to the price of wheat as wheat becomes more competitive for feed. We are starting to see some decent export sales again now that the price of wheat is making new lows and US wheat is competitive in the world market again.
March Corn – March Wheat Spread
Meanwhile domestic basis continues to soar for corn and soybeans with supplies remaining tight and low producer selling. Typically we see a seasonal high for corn in April but as we know these past 5 years have been anything but typical. Last year during the spring time frame we saw a sharp rally in corn basis but it did not translate to a meaningful flat price rally. In early 2012, prices remained in a large range until the drought started the bull market in late June (see chart).
Weekly Front Month Corn Winter/Spring of 2012
So far the low end of the range for March 2013 corn has been $6.78 and the high end was $7.46 ¼. Look for $6.78 to be the next major support level.
Daily March Corn 2013
Thursday the USDA released their Ag Outlook which has some traders scratching their heads. They have total acres plus CRP down 4.6 million from last year despite the higher early 2013 prices (so far). Many private estimates are coming in with higher acreage but they are discounting trendline yield due to the drought. We are expecting corn and soybean acres to be a few million above the Ag Outlook estimate… EACH. The USDA still has corn production pegged at a record and they are estimating a fall price of only $4.80 per bushel. For now we remain bearish new crop corn and soybeans and want to stay with the current EHedger recommendations.
Currently our official recommendations call for 30% protection in cash sales, HTAs, or futures (average price of $6.40) and 20% protection in long $5.50 December puts and short $7.00 December calls. We would like to BUY BACK those $7.00 calls and SELL December $4.50 puts for EVEN MONEY. What this does is remove the marginal risk of the trade (the short $7.00 calls) without spending additional premium. It does however limit the amount of protection you will get on those $5.50 puts capping their protection to not below $4.50. It is important to note that this trade is for those who already have the spread on AND have a healthy level of sales and insurance coverage. To go over this strategy in AgYield, please contact us today.
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