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The January WASDE was bullish across the board for the grain markets. Soybeans, corn and wheat all closed higher. Corn finished the day limit up. In this podcast we take a look at the numbers and what we think it means for old crop and new crop. Below we have our updated supply and demand tables a few trade ideas. Make sure you take a listen to this week’s Turner’s Take Podcast!
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Supply and Demand Tables
CORN
Below are my updated supply and demand tables for both corn and soybeans. The columns on the left are old crop per the USDA report yesterday. The middle column is my estimates for old crop. The right column is for new crop.
We see corn ending stocks coming down to 1.3 billion bushels. This justifies corn prices at current levels. My target for now is $5.50 old crop. If we have weather issues this spring/summer in the US I can make a case for $6 old crop at some point. That in turn could bring new crop to $5.
We’ll hold our current old crop positions. I am getting a lot of calls about marketing new crop. If you take a look at the new crop column, we estimate 92mm acres and a trend line 180.5 bpa. Personally, I think 180.5 is a lot to ask for considering it is dry in the Midwest, La Nina could continue into the spring and bring drier and hotter conditions, and the acres the US adds on will tend to have yields below the national average.
New crop corn should stay above $4 all marketing year. A carryout of 1.5 billion bushels is right on the line of being adequate or tight. Odds are the production number is more likely to go lower than higher. It is hard to argue for $5 or higher in new crop with out serious weather issues this summer.
For farmers looking to start marketing and hedging new crop, I like the following as a spread
- Buy the Dec 2021 Corn $5.00 Call
- Sell the Dec 2021 Corn $6.00 Call
- Sell the Dec 2021 Corn $4.00 Put
We were doing these today for around 2 cents and margin was around $650. Farmers who want to start pricing corn for 2020 can use this as a re-ownership strategy. I also like it a lot as a courage option spread for future sales. If you put this option spread on you can then sell new crop on the rallies this spring/summer and still have a lot of upside left.
Interested in working with Craig Turner for hedging and marketing? If so then click here to open an account. If you are a speculative or online trader then please click here.
SOYBEANS
Soybeans are tight. The USDA has old crop at 140mm bushels. I have it at 115mm. Either way old crop has a good chance of trading to $15 and chart resistance is around $15.50. What is really interesting is new crop. At 92mm acres and a trend line yield we are still under 200mm bushels carryout next year. Some very well respected analysts in the trade think soybean acres will only be 90 to 91mm. That means we start off the year at 100 or 150mm bushels. Regardless of who is right, we will all agree that new crop is bullish.
If you have to price new crop soybeans I would buy the Nov $12/$14 call spread and then sell the $11 put for re-ownership. It costs about 5 cents. Honestly, I think soybeans are a multiyear bull market story and beans could be tighter next year than they are now.
Interested in working with Craig Turner for hedging and marketing? If so then click here to open an account. If you are a speculative or online trader then please click here.
Other Ideas
I still like being long July KC wheat vs July Chicago wheat. We think that spread can go from KC trading 20 under Chi to 20 over in the next marketing year. I have talked about this in the past but we still think HRW stocks come down and SRW stocks go up. Over the past few years SRW had a tighter stock/usage than HRW. We think that changes in 2021-2021 and it will be HRW that has the tighter stock/usage ratios.
I also like March Rice. The WASDE was bullish on rice as demand was stronger than expected. Rice will most likely lose acres to soybeans this year in addition to strong demand. If you are a client of mine and like to trade rice, the please call me.
About Turner’s Take Podcast and Newsletter
If you are having trouble listening to the podcast, please click here for Turner’s Take Podcast episodes! Craig Turner – Commodity Futures Broker 312-706-7610 cturner@danielstrading.com Turner’s Take Ag Marketing: https://www.turnerstakeag.com Turner’s Take Spec: https://www.turnerstake.com Twitter: @Turners_Take Contact Craig Turner
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