Today’s report, which is traditionally the 2nd biggest report of the year, was bullish for Soybeans, neutral for Wheat, and bearish for Corn. The corn numbers had the biggest impact on the markets as new crop acres and quarterly stocks were both higher than expected. May Corn is down 18 cents to $3.7650 and Dec Corn is down 17.5 cents to $4.0075.
The weakness in corn dragged down wheat. Soybeans would have rallied more if corn was not so bearish. The thing is Soybeans have adequate stocks in the US and a large crop in South America, which translates to large worldwide stocks. While the soybeans number was bullish, we still have a lot of beans in the US and around the global. Corn was the market the trade thought could be very sensitive to weather issues this year. We have adequate stocks now but hiccups along the way could make stock/usage tighter than the market would like to see. So when the corn number was bearish, a lot of those bullish hopes faded and 20 cent rally we had in the past two weeks all came off. The bearish number in corn had more weight to prices than the bullish number in soybeans.
Going forward we will be trading weather. First it will be based on planting progress and delays, and after the crop is in the ground it will be growing weather rallies and sell offs. I have two sets of tables below. The first is if all goes according to plan and we have relatively normal weather with expected acres and yields. In this scenario grains are bearish and I see corn at $3.80 and beans at $8.50 by harvest.
Scenario #1: Normal weather with expected acres and yields
The second scenario is if we do have weather issues. I reduced the corn yield to 160 and the bean yield to 44. Bean stocks come down to 300 which is still adequate. However, corn stocks are getting to close to 1 billion and that could send corn to $5.00. Looks like to me corn will be more sensitive to weather rallies in 2015 than soybeans, which is something we have been saying for about five months now. If weather becomes an issue this spring and summer I like bull spreads in corn and I like being long corn against short soybeans (2:1). However, if we have a relatively normal growing season I think corn heads moderately lower while beans could go down $1.00 or more.
Scenario #2: Adverse weather with loss of production
Final Thoughts: For now I still like our current grain positions. I like the short straddle in corn as I think we are up and down 20 and 30 cents for the next few months as the market trades the weather. I like our bear put spread in soybeans as I do see soybeans breaking lower with the large South American harvest and record acres projected for US Soybeans.
It is important to note both the Dec Corn and Nov Soybean positions are long term positions. When the opportunity presents them I like trading short term against and around those long term positions. For example, corn really sells off and we are entering a weather period, I like betting bull spread in corn. Same goes for soybeans. I like bull spread both corn and soybeans in the old crop/new crop spreads during traditional weather market periods. I think in the long term prices head lower, and that is why we have the long term option positions, but we will be looking to take a few bullish short term position in corn and beans this year as weather could give us some short lived rallies due to either planting delays or growing concerns. For corn we will be looking at CN5/CZ5, CU5/CZ5, and CZ5/CZ6. For Soybeans we will be looking at SN5/SX5 and SX5/SX6.
I will be out of the office next week on spring break with the family so I’ll probably hold off making any new recommendations. Friday is holiday so this also means we have a short week for trading. I’ll have a Turner’s Take tomorrow and Thursday but I will be out of the office starting Friday and all of next week.
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