This is a sample entry from Craig Turner’s weekly market analysis newsletter, Turner’s Take, published on May 08, 2013.
In this issue:
- WASDE: Looking forward to new crop estimates
- Corn: Bearish new crop corn – sell rallies — if not short already, look to sell
- Soybeans: Bearish new crop soybeans – sell rallies — if not short already, look to sell
1) WASDE: The USDA will release the WASDE report on Friday at 11:00 AM Central. I always look forward to USDA reports, but this one in particular has me very excited. We have been speculating on the new crop in corn and soybeans for a while now and we will finally get a WASDE report that has new crop estimates. As you all know, I have been very bearish on the new crop, as has Andy Daniels and http://grainanalyst.com/.
After reviewing the analyst estimates for new crop corn and soybeans, I think only one thing is certain: the trade has no idea what to expect for new crop on Friday. Ending stock projections for new crop corn range from 1.387 billion bushels to 2.427 billion bushels. The average is 1.993 billion bushels. This is as wide as you will see. In my opinion, the only way the numbers get this wide is if analysts are just flat out guessing. The difference between 1.4 billion and a 2.4 billion carryout is the difference between $5.50 and $3.75 corn.
As for Soybeans, the range is not as wide but I think the analysts are not being bearish enough. The average guess is 236 million bushel carryout of the new crop soybeans. The range is from 147 million to 325 million. I’ll touch more on that in the Soybean section below, but the analysts are basically saying new crop beans are going to be between the prices of $9 and $13.
So, as you can see, the industry is all over the place with new crop corn and soybean estimates. I think the old crop story is about over and all that is left to do is watch it all play out over the next few months. Andy Daniels, and myself included, think the big moves and opportunity lies with new crop, and that is why I am very excited to see what the USDA says on Friday.
2) CORN: We were filled last week selling the Sept Corn $6.00 call and we got a great fill at 30 cents. We have suggested many ways to get short new crop corn over the past few months. We like the CZ/CU spread, selling $6.00 CU calls, long the CZ $4.50 put and short the $7.00 call, short CU outright, and finally we are long the CU $6.70 Put and short the CZ $6.70 call. Every one of those positions is in our favor. I don’t know any other ways to say it or many other ways to come up with different ideas based on the same market bias. However you like to trade, I like being short new crop corn, and if you agree with me you should find a way to take a bearish position in the market.
I think the new crop corn carry out will be above 2.0 billion bushels, so obviously I am bearish on CU and CZ. While weather rallies can be fast and furious, I think they need to be sold until further notice. Unless we get real, significant damage to the new crop, weather rallies will be selling opportunities for farmers and spec traders.
I don’t have any new trades this week, but if you are not already short new crop corn in some capacity, I recommend calling me (or your Daniels Trading broker) and figure out the best strategy for your account.
Open Position (Spec & Hedge): Sold the Sept Corn $6.00 Call for 30 cents. Last traded 24 cents. Specs should risk 15 cents (to 45) and Hedger should use this as a way to collect premium on unsold bushels.
Open Position: Long 2 CZ13/Short 2 CU13 from an average price of +30’0. Last traded +24’0. Look for the spread to move from an inverse to a carry by the time Sept 13 comes off the board. Margin $810. Last traded +25’0. This is bearish position on New Crop.
Open Position (Spec & Hedge): Long Dec Corn $4.50 Put and short the $7.00 Call for even money. Last traded at 6’0 cents premium to the $4.50 Put. Margin is $848. Bearish position on New Crop.
Open Position (Spec & Hedge): Short September Corn at $5.80. Last trade $5.60. Margin is $2700 for the standard and $540 for the mini. Bearish Position on New Crop.
Open Position (Hedgers): Long CU13 670 Put and short Dec 13 670 Call for -3’0 credit ($150). Last traded at + 106’0. Up $1.09 per 5000 bushels.
3) SOYBEANS: Looks like I sold November Soybeans too soon, but that is a risk we take when trying to sell on a stop looking for a breakout lower. The important thing here is to not get over leveraged. You have to be able to sit through this weather chop as we wait for lower prices.
I really think the WASDE is going to be on the higher end for new crop soybean carry out. If it is not, then it is going to be a selling opportunity for farmers and spec traders. I will get more into this next week, but consider the following:
- South America will have 30mmt more beans this year than last year. Most of that extra production will find its way to the export market.
- South America has so much soybean supply that their traditional marketing year will run into the US. When the US marketing year starts back up again in October, South America will still have cheap beans to sell to clients who have been buying from them exclusively for months. You are going to start hearing about the “Long Tail” of the South American marketing year. When you do, now you know what everyone is talking about.
- 30mmt more S. American soybeans + the “Long Export Tail” cutting into the US marketing year = a situation where Export Demand for US Soybeans is going to be much lower than what analysts are thinking now. That is why when I see the new crop carryout at an average of 236 million bushels, I cringe a little. 236 is my low right now. I think 350 should be the average and 400+ the high end of the spectrum.
Given anything close to normal growing and production season for US Soybeans, I think SX is easily sub-$10 by harvest. Short new crop soybeans are my favorite trade for 2013 now, with new crop corn a close second.
I want to use this latest weather rally to sell SX again. I would like to sell at $12.20 so I can average the short to $12.05. I also like the SX14/SX13 futures spread. SX14/SX13 is trading at -5’0 and if beans break like we think they can, we could make a run at -50’0. There is some risk in this. Any real weather markets can send this spread up much higher, so you have to pick your spots. I think selling bear spreading SX14/SX13 on rallies is nice way to sell beans all year.
Seasonally, SX13/SX14 is strong until mid July and then is sells off until the end of September. Given the current environment, and if the market see the potential of a massive carryout like I do, I don’t think this will be a normal year for SX13/SX14. I think the weight of a massive South American crop and the potential for a very large US crop could keep the spread at a carry for much of the year.
For Hedgers, I like buying the SX13 $12.20 Put and financing it with the SX14 $13.00 Call. Farmers can get protection for $12.20 and not have to purchase premium by selling the SX14 $13.00 Call. Since farmers will have 2014 Beans, they can use those bushels to help pay for the 2013 hedge. If 2014 soybeans do rally over $13.00, farmers will have to be prepared to have a 2014 sale at $13.00, which makes this like an HTA.
Trade Recommendation (Spec and Hedge): Buy SX14 and Sell SX13 at -5’0 cents or better (5 cents to the buy side). Margin is $1200 per spread. Risk to a close above +15 cents (20 cent risk). Look for an eventual move to -50’0 cents (45 cent target).
Trade Recommendation (HEDGERS): Buy the November 2013 $12.20 Put and Sell the November 2014 $13.00 Call for 4’0 cent credit or better. Farmers are buying protection for $12.20 in new crop will making an HTA type sale for 2014 at $13.00.
Trade Recommendation (Spec & Hedgers): Sell November Soybeans at $12.20. Risk to $12.60. We are already short from $11.90 and this will average the position to $12.05
Open Position: Short Nov Beans from $11.90. Last $12.20. Risk 60 cents to $12.50 (standard or mini). Looking for a move to $10.00 or lower.
Open Position Long the $10 November soybean put and short the $16 call for even money. Trading +3’0 to the $10 Put. Margin is around $900.
Open Position (Spec and Hedgers): Long Nov Soybeans $11 put and short the $15 call at even money. Last trade +14’0, premium to SX $11 Put. Margin $2300 per options spread.
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