Monday’s crop progress report put beans planted at 71% versus the 10 year average of 74%. Even with all of the rain, we are still at a fast pace which has traders talking of 1-2 million more acres to be planted compared to the March 31st planted acreage report.
Near perfect weather called for in the 10 day forecast of warmer and drier should have bean planters finishing up, giving us a potential break down to the $9.00 area followed by short covering by trend following funds that entered this week short 90,000 contracts.
Noncommercial funds entered short 113,000 contracts. A short covering rally of just 35% of that position could be a dollar on the upside of beans; while this may also represent a base of a weather premium to build on. We anxiously awaited the wheat crop condition report on Monday to see if damaging rains in the Western wheat belt had damaged the crop. The condition came in at 44% good to excellent condition, down just one percent from the week prior.
It is hard to imagine to have rain totals of biblical proportions that recently occurred in Texas, Oklahoma, Kansas, and parts of Nebraska and not have a change in the condition of more than one percent in the major producing winter wheat states. So we look for a possible change in next Monday’s report to make up the difference. It could be as much as 3% points lower if the damage has been done. This past weekend came in wet, but then turns very dry in the wheat belt, just what’s needed to develop a higher rated crop. Any correction in the market should be bought in my opinion and then look for a short covering rally by non-commercial funds short 67,000 and trend following funds short 84,000. The reason for a rally and not a break on a better crop rating comes as it would move the US to a primary port of origin for high quality milling wheat if the good growing weather had improved the crop conditions
Here are two trades to possibly consider. I propose buying the September soybean 9.80 call and selling two September soybean 10.80 calls for six cents or in cash value $300.00. Second proposal is to look to buy the December 6.00 wheat call and sell two December wheat 7.00 calls for six cents or in cash value $300.00. I look for continued short covering and a possible weather premium to be built into the market throughout the growing season for soybeans and increased short covering potentially in wheat. The risk on the trades is the price paid for the spread plus all commissions and fees.
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. 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.
