I will cover supply side fundamentals first with Monday’s crop progress report. Corn harvest was 24% complete down from the five-year average of 43%. Crop condition came in unchanged at 74% good to excellent condition. Soybeans harvested were 40% versus the five-year average of 53% and condition at 73% good to excellent unchanged on the week.
The crop is far enough along that we do not expect the condition of either to change by more than 4%. The condition is no longer looked at for trading direction. The USDA reported that for the week ending October 9, the US shipped out 39.0 million bushels (mb) of corn, 52.4 mb of soybeans, and 16.1 mb of wheat. The US has a good chance of exporting a record tonnage of soybeans during October with China the big buyer. US corn and soybean exports to date are well above last year and on pace to reach USDA’s annual forecasts.
Fund short covering has been significant the first two days of this week in soybeans and corn. Soybeans and corn leapt to their highest price in three weeks which triggered fund buy stops along the way. US farmers have been sidelined by all of the rain in the past 48 hours are anxious to get back into the fields.
The midday forecast offers improved harvest weather thru October 26. The warmer and drier weather looks to facilitate a more active harvest pace. It is possible yet to retest the lows made last week or even make new lows before the month is over. If the recent lows hold it will be because of the weather. Early frosts and continued harvest delays combined with the fact that harvest is already well behind five and 10-year averages. This is usually due to weather problems leading to thoughts of production declines. Bulls may use this weather concern to buy breaks in the market supporting recent lows.
In looking at harvest production we see soybeans moving out of the field faster than corn as beans are where the profits are for farmers.
Our contention is that with a 68 percent increase in corn storage and carry from last year farmers will simply hold the corn and wait for higher prices to sell leaving end users, ethanol producers, and sweeteners to bid up the cash price in search for the physical.
The Trade
Therefore I propose the following trade. If March corn futures retrace back to the $3.60 level on a retracement later in the week, look at buying the March corn 390 calls for 9 cents or in cash value $450.00. The risk on the trade is the price paid for the option plus all commission and fees. I look for corn to see a post harvest bounce continuation bounce and challenge the 4.00 level later this year.
Grain Webinar
For those interested in grains, Walsh Trading’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. 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.
