TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS ANDMAY 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.
In just a few trading days December corn has managed a thirteen cent bounce from last week’s lows. Ideas that national average yield might not be quite as high as the current USDA estimate and optimism about both domestic and global demand are helping with the recovery. Seasonal cash movement patterns may also have some influence. The question will be – Is this the harvest low for corn?
Crop Tour Me
Two weeks ago today I was on day two of the Western leg of the 2018 Pro Farmer crop tour. I went on the Western leg this year hoping to see something in this crop that made me believe we would see a bullish surprise when we get into harvest. We were thinking that because of the fast pace of this corn crop maybe there would be something suggesting there was a problem going unnoticed by crop conditions. However, while I am not an agronomist and was not taking ear weight or kernel depth measurements my general feel is that it was there, or at least not far off of where it should be.
While I didn’t feel like I saw any major hidden problem with this corn crop I can also say that I did not feel like what I saw was as spectacular as last year. Granted, last year I was on the Eastern leg and went through some of the best corn I had ever seen. But, last year was a much less mature crop and at least some of the record yield likely\y came from the ideal, and extended finish to the growing season.
Unfollow Ted? Wait…
What this means to me is that even though I did not see anything to make me believe (and again there are more expert people to me when it comes to corn anatomy) this corn crop is going to surprisingly be 6-8 bushels lower than the USDA’s estimate I also don’t think it is much above either. If anything I think that this corn crop could be slightly smaller than the USDA’s guess. At the very least we can say that this is a very mature crop so whatever the USDA says on the September WASDE report will likely be very close to the final barring any big unforeseen surprises (again, not to my eye).
This might sound like I am bearish corn prices or at least less bullish. But, that is not necessarily the case. I really like the corn story. We have what looks like a new record national average yield on 90 million acres and yet still might have the tightest carry over we have seen in years. Why?? Because low process have encouraged a tremendous amount of demand both domestically and abroad. To me this is rather bullish and suggests we need more corn acres and to continue record setting production metrics, and price is usually the vehicle to encourage these things. However, there is a major potential monkey wrench – soybeans…
Thanks a Lot Soybeans
As friendly as I am for the corn market right now I think the soybean shituation is one of the worst we have seen in decades. I have and will get into this more in other articles, but the bottom line is that right now production is going up and our demand is falling sharply due to China. This will leave us with a new record carry over (possibly well over 1 Billion bushels) and we cannot grow domestic demand fast enough to use the extra beans. In other words we will be swimming in beans and if the market tries to resolve this situation it will not be easy. From what I can tell lower prices will have minimal effect on encouraging new demand so the more effective thing price can do is discourage acres.
This brings us back to corn… It seems likely to me that corn will pick up a sizeable chunk of acreage from soybeans if the trade dispute with China is not resolved well before planting the next crop. Most people would say this is bearish and/or – “what does it matter if we have a 1.5b bu carry over in corn if we are adding 4-6 million acres?” Well, I see and understand that argument. This is why I recognize that corn’s upside potential might be limited by soybeans for now.
Don’t Bring Me Down
However, my response to that statement is this – For whatever acreage we gain here in this country we will lose acreage in other parts of the world as global producers race to satisfy China’s need for soybeans. Our exports could set records next year, and it could be a scenario where we have more corn acreage, a good yield and still have declining ending stocks. To me that would be really bullish but, even if my thinking is right it could take a long time for the market to realize it.
So, is this the harvest low for corn? I’d like to say I think so. I want to be friendly corn into the New Year and see a seasonal recovery. But it is hard predicting what will happen with soybeans and the trade dispute with China, or how corn will react to all of it. Is this the harvest low for corn? I think the best way to look at it is if corn had its way it probably is but keep an eye on soybeans, they may try to sink the ship.
Give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action. Ted Seifried - (312) 277-0113. Also, 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. Find me on twitter - @thetedspread
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
We have complimentary 2018 commodity reference calendars available. They are a little bigger than pocket sized and very useful if you follow markets. You can sign up for yours here - http://www.zaner.com/offers/calendar.asp (Shipping to the US only)
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Very short episode today, since its is Veterans Day
Darin Newsom lays out the markets
Casey Seymour of Moving Iron discusses machinery
Ogallala Aquifer Concerns & New Intern Katie