Friday’s monthly crop report yielded more bearish surprises as both average yield and production came in at all time record highs for new crop Corn and Soybeans. For Beans, old crop ending stocks came in at 255 million bushels compared with 350 million last month and with an average guess at 320. This confirms what many analysts were thinking and that was the USDA was too lax on old crop exports. New crop ending stocks came in at 330 million bushels from an average trade guess at 316. The bearish surprise was the increase in yield at 48.9 B. P.A., up 2.2 bushels per acre from last month while production was pegged at 4.06 billion bushels which are both all-time records. Though the market broke twenty cents seconds after the report’s release, the market slowly recovered throughout the session and grinded back to unchanged on the close. On Monday funds increased their long positions pushing beans another thirty cents higher.
Why the rally after a seemingly bearish report on Friday?
What’s lost in the news is that on Friday August 12th, exporters reported another sale of 258K tonnes to China. This makes it 12 out of 13 trading sessions of bean sales to China for an enormous total of 3.68 million tonnes. Since the August USDA data for the monthly crop report is compiled up until the last day of the previous month, these sizable sales won’t show up until next month’s report. Certainly this pushes new crop sales under 300 million bushels and if China keeps up its expected future sales pace, it could push new crop ending stocks under 250 million bushels down the road.
For Corn, the supply/demand monthly update came in with a record yield of 175.1 bushels per acre with production pegged at a record 15.1 billion bushels for new crop. Both totals surpassed the high end of trade expectations.
New Crop ending stocks came in at 2.409 billion bushels from an average trade guess at 2.25 billion bushels. While export sales for future shipment lag behind the aggressive sales pace and percentage of beans, traders question the USDA’s calculation of ear weights versus ear per acre, which points to lower future yields in future reports. The corn market made new yearly lows at 3.22 new crop December futures seconds after the report’s release before grinding higher on report day to finish unchanged. Monday’s (8/15) trade pushed corn at one point 6 cents higher before pulling back near the close. Simply put markets that do not push lower on bearish news are decidedly bullish. The trade might be pricing in a 2.4 billion new crop carry so further adjustments lower should they happen could mean lows are in for awhile until harvest pressures emerge.
Those looking for a trade idea for upside exposure may consider the following. Buy one of the May 2017 Corn 390 calls and sell 2 May 2017 Corn 300 puts for 4 cents or better plus all commissions and fees.
For those interested I hold a weekly grain webinar each Thursday at 3pm. It is free for anyone who wants to sign up and link for sign up is below. If you cannot attend live a recording will be sent to your email upon signup.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
