On Demand

Grains: It's Not What You Plant It's What You Grow

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Since index and trend following funds took over in the grains as the big volume traders controlling prices they developed a seasonal pattern for their havoc. 

The first three months of the year they price in all the news affecting prices in South America, mainly Brazil and Argentina.  They are among the largest corn and bean producer exporters in the world. April is the between month before they begin to trade the planting and growing season in the U.S. They use April to clean books up and trim the fat of first-quarter buying.  Last April 2013, corn broke 65 cents, wheat 75 cents, and beans $1.00.  The year prior 2012, corn broke 70¢, beans 50 and wheat 70. 

Get Long For Summer Rally

Each year going backwards has its own correction variable but it is clear that funds like to step back in April to get a running start for the summer growing season uncertainty. The importance of an April break, should it occur, is it is your next chance to get long for the summer rally.  The April low shouldn’t last long as a rally into late May seems possible as late planting seems certain.  A record cold winter has the Midwest soil frozen deeper than normal.  We need soil to be over 58° before we seed.  WXRISK.COM the ag weather site sees April as colder and wetter than normal, so that goal will be difficult. 

Index and Trend following funds resumed buying Corn and Soybeans after Monday's planted acreage and quarterly stocks report from the USDA. The report on surface was not bullish but not as bearish as feared. The day after these USDA releases and traders say, "it’s not what you plant, but what you grow." Before U.S. planting season begins, I will look for a correction and therefore propose the following trade.

Trading Idea

I recommend for a conservative position trade, look to buy a May Soybean 1400 put for three cents or in cash value, $150.00. In lieu of shorting futures up near 1490.0 basis May futures, this is inexpensive way in my opinion to catch a move to the downside in the next few weeks. The risk on the trade is the price paid for the option, plus all commission and fees.

Grains Webinar

For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 p.m. central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. Link for next week’s webinar is below. If you cannot attend live, a recording will be sent to your email upon signup. Or please contact me at anytime (e-mail information is below).

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.

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Visitor - Lars: A lot can happen between planting season and harvest, that is what makes the grains so fun to trade
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About the Author

Sean Lusk is a registered commodity broker and Director of the Commercial Hedging Division of Walsh Trading in Chicago.  Reach Lusk via e-mail here.

 He started in the business as a runner on the trading floor during summer breaks from college in 1993. Upon his graduation from Southern Illinois University at Carbondale in 1996, Lusk began his career on the trading floor of the Chicago Mercantile Exchange (CME). Overseeing billions of dollars of transactions working as a clerk in the Eurodollar pit, Sean took the next step and became a floor broker and member of the CME in 2003. He handled customer orders for banks and investment houses from all over the world from inside the Libor pit at the CME.

 Now, at Walsh Trading, he utilizes his experience in the marketplace and his professional client service skills to aid and assist customers in their trading endeavors.  Contact Lusk to be added to his free daily and weekly market commentaries focusing on both the Precious Metals and Agricultural Markets along with related market activity. He is widely quoted in the media including Futures Magazine, Reuters, Forbes, Kitco, Nikkei Press, and CCTV.com

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