We recorded a new podcast yesterday afternoon. John and I about the USDA’s Planting Intention report, the 93.6mm corn acre surprise, and what we think that means for prices.
CORN | With the USDA Planting Intentions report in mind and the WASDE on deck, I think we should take a look at where we expect corn and soybean prices to head by the end of the year. When you forecast prices you are using assumptions for the following factors
- Future value of the US Dollar
- Future value of Crude Oil
- Weather and Grain Production
- Economic Growth and Grain Demand
Needless to say a lot can change between now and harvest. However, if the US Dollar and Crude trade in range, we have a normal planting and growing season, and economic growth stays in range, you can make price predictions. Based on last week’s Planting Intentions report our price forecast for corn is lower and beans are about the same.
Corn added over 3mm acres according to the USDA. That is between 500 and 600 million bushels of corn. The all determining factor of where prices are found is in what the projected ending stocks will be and how that changes the stocks/usage ratio. Adding 500 to 600 million bushels to ending stocks puts new crop carryout around 2.5 billion bushels and almost a 20% stock to usage ratio. Last we had the stock/usage that high was the 2004/2005 season and corn was $2.00.
Do I think Dec corn can trade $2.00? No, I do not. I do think we could make a run to $3.00 at the end of the year if we have a large, healthy crop, the US Dollar stays strong, and Crude Oil stays low.
Keep in mind there will be rallies along the way. Right now I would be a selling of Dec 16 corn on a rally to $3.75. For us to get to $4.25 to $4.50 we would probably have to shave off 10 bpa on the national average (go from 168 to 158) or lose 6 million acres, the US Dollar goes down by 5 or 10%, or Crude trades back to the $60s. You can also have a combo of some or all of those factors but not as extreme.
As it stands now, this is how we see the new crop corn supply and demand expectations.
SOYBEANS | I think new crop soybeans (Nov 16) has about $1.50 of downside risk IF we have an “as expected” crop, the US Dollar trades in range and Crude trades in range. Soybeans is trading at a higher value relative to Wheat and Corn and that is appropriate. Why? Corn and Wheat are grown all over the world. We have large stocks in the US and across the globe. If the US does not have a good corn or wheat crop, it is only a US issue, not a global issue. However, the world’s soybeans are for the most part produced in the US and South America, especially when you use exporting as a primary factor. We do have a large stockpile of oilseed in the US and globally, but if we have a production issue that just leaves South America to make up the difference. Soybeans have two points of failure in in a crop year (US and South America) while corn and wheat have production redundancies all over the world. Therefore Soybeans typically gets more risk premium built in to new crop when compared to corn and wheat.
Below is our Supply and Demand table for new crop soybeans. We also have a chart of Nov Soybeans below. Our target low for beans in a worst case scenario is currently $7.75. I don’t use best case scenarios in soybeans because they can trade much higher than one would think. That is why I usually don’t like selling new crop soybean calls. I’m fine with selling old crop soybean calls, especially if it is a farmer who has the bushels in storage. If you get an issue with new crop soybeans, it can be a very big issue fast just because the world has only two geographical sources of exportable soybeans.
I like Nov Soybean Put spreads this season. Farmers can sell calls on old crop to help pay for them if they have bushels in storage. Speculators with a longer term view should look into the Nov Soybean $9/$8 put spread on rallies.
Try Turner’s Take Market Alert – Paid Edition – Yearly for 365 Days
Turner’s Take Market Alert – Paid Edition – Yearly - Turner’s Take Market Alert includes Daily Updates and an Intraday Trade Recommendation service for Daniels Trading clients. The subscription cost for Turner’s Take Market Alert is only $295.00 per year. Clients of Daniels Trading may receive both Turner’s Take Weekly and Market Alert services for free.
Turner’s Take Market Alert – Paid Edition – Yearly includes an email newsletter subscription.
Turner’s Take Market Alert – Paid Edition – Yearly trial lasts 365 days.
Attention Moore Research Center Subscribers!
An effective and efficient trade execution can make the difference between the success and failure of a trade. Knowing this, the brokers at Daniels Trading are dedicated to consistently providing you with professional and accurate trade executions of Moore Research Center’s trade recommendations.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.