On Demand

Corn And Wheat: Market Psychology Shifting

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Looking back on corn, its numbers remain supportive. Monday’s inspection report, a gauge of demand showed 41 million bushels were inspected to be shipped.  Anything over 40 million bushels is bullish as it keeps corn exports ahead of USDA projections.

Last month’s USDA crop report raised exports and lowered our ending stocks for the fifth consecutive month, showing a stronger demand pace and talk of lower stocks on the June report. Monday’s planting progress came in at 73% complete. Key Midwest producers read like this: Illinois 84%, Indiana 72%, Iowa 84%, Missouri 92%, and Nebraska 91%. On next Tuesday’s crop progress report these states will climb over 90% planted.

MOTHER NATURE

Then the psychology changes on weather. It's no longer weather and its impact on planting but weathers impact on emergence and eventual production. To date a warmer, drier outlook meant a faster planting pace and lower prices. After Tuesday, it’s bullish as timely rain is needed for good development. Just a reminder a holiday is coming up with markets closed Monday. Seasonally corn turns up after the Memorial Day holiday. Support on July corn is 4.58 with resistance 4.90. Any move down towards 4.60 should be bought as that would be the worst case scenario before the crop is made.

Wheat psychology may be changing as well. Monday’s condition report showed 29% of the crop in good to excellent condition, down for the fourth consecutive week and the lowest since April 7.  This is all due to lack of rain in the Western plains wheat states. Yet, the July futures hit a low of 6.62 Monday May 19, which was 80 cents off the 10 day prior high. With harvest starting in early June, this could be a sign funds are done buying crop decay. Drought starts out bullish then turned bearish to pricing.

Wheat’s grown for human consumption with the processing of pastas, breads, and snack cakes. When the crop has a high rating, everyone wants it. When ratings are low demand is weak, with much of the wheat suitable only for the feed ration at low cash bids. Wheat also forces more corn into the feed ration due to its price to wheat two dollars cheaper per bushel. Big inventories in Europe are cheaper to the U.S. leaving the U.S. a third or fourth port of origin for wheat.  July wheat resistance is 6.90 with major support 6.65. A close under and 6.44 is next.

THREE TRADE IDEAS

I have three potential trades for you to look at. Let’s start with July wheat. As I said, a close under 6.65 sets up a target of 6.41 July futures.  July Wheat closed at 6.70 ½ on Tuesday May 20 so we are close. If you go short use a protective stop over 6.90 for protection basis July futures.

Second is in July corn. Look to buy July futures at or near 4.58 as possible due to the aforementioned reasons. Those who want to stay away from futures and want to catch a possible much larger move higher for the growing season, here it is. I propose buying the September 520 call and sell the September 620 call for 8 cents or a $400.00 risk. If we are hot and dry through July and August, the fear premium will be built by index and trend following funds, which are the big money in commodities and prices could soar into the low $6.00 range. The maximum one could lose on the options trade is the price paid for the spread plus all commissions and fees. Maximum profit is $5,000.00, if both strikes finish in the money at the time of expiration.

WEBINAR

For those interested in grains, Walsh Tracing’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 PM 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.


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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edjaworska1: Corn And Wheat: Market Psychology Shifting http://t.co/fVqvEiMWIJ via @TraderPlanet
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Visitor - Pat: Global markets are flooded with wheat, which should add pressure to US prices
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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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