June 11, 2021
The weather outside feels like July. The market trading ranges have a July feel to them, yet it is only the first full week of June. The July corn contract traded a 48-cent range this week. Not to be outdone, July soybeans range was 90 ½ cents. With the most critical time of the growth stages ahead of us, we anticipate the wide trading ranges we are experiencing will be getting even more extreme.
Why have we seen such extreme moves? They are multiple factors that have come together to bring us this volatility. One factor is the daily trading ranges which were expanded a few weeks ago. The soybean daily limit move range is $1.00 higher or lower from the previous day's settlement, a $5000 per contract cash move in one direction or $10,000 range high to low. Corn daily limit move range is $.60 higher or lower from the previous day's settlement, a $3000 per contract cash move in one direction or $6,000 range high to low.
The positions that the trading funds can carry were revised up, which adds to the recent volatility. Funds corn position limits were 33,000 contracts and have now been revised to now allow them to hold 57,800 contracts. This week alone has seen days significant shifts in the funds daily buys and sells. They sold 12,500 corn contracts on June 3rd to turn around and bought 27,500 contracts on June 4th. They were estimated to have sold 25,000 contracts on June 11.
Soybean position limits have been revised from 15,000 to 27,300. Like corn, soybeans have seen significant daily position movement. On June 3, they sold 7500 contracts and then turned around, bought 22,500 on the June 4 and bought another 12,000 contracts on June 8. Wheat position limits have been revised from 12,000 contracts to 19,000 contracts.
The supply-demand picture will continue to add to the market's volatility well. With the old crop corn stock to use ratio projected at a razor-thin 7.4%, we have little room for production shortfall this summer. This has the trade watching and trading every weather map update.
Multiple weather maps are updated throughout the day, but the trade focuses on the European and the American Model (GFS). The European model has a recent history of being more accurate in predicting precipitation. Still, the American has an update in the middle of the day's trade, so it garners the trade's attention.
Old crop soybean ending stocks number did see a slight uptick on the June WASDE report due to slight revisions to the balance sheet. Ending stocks to use are now estimated at 3%, up from the previous estimates of 2.6%. Even with this slight upward revision, the 3% stocks to use represents only 11 days' worth of supply. The increase in stocks to use was due to a lowering of soybeans used for crush by 15 million bushels.
The question will be debated whether we will see a lower of the crush due to less demand for meal and oil or because there just might not be enough beans to crush to hit the USDA's May crush target of 2.190 bb. Our sources tell that end-user have coverage through July, but August and September are another story that could make getting ahold of soymeal late in the marketing year a real challenge.
Adding to the supply issue is the USDA's optimistic viewpoint of soybean imports. To keep the US from dropping ending stocks below 120 million bushels (Bare minimum), they assume that we will import 35 million bushels. It is easy to import the 35 million bushels of beans on paper; getting the physical product in over the next three months could be a more challenging hurdle to clear. Through April, the US has imported 7.66 million bushels of soybean.
We estimate another eight mb has been bought but not necessarily shipped yet. This brings total potential imports on the books at an estimated 15 million bushels. This leaves 20 million bushels left to be bought and imported over the last three months of the marketing year. It currently does not make economic sense for end-users to bring beans from Brazil to the US gulf. Due to this economic condition and the tight time constraints, we would look for imports to not make the USDA's current estimate.
With the June WASDE numbers out the way, the trade attention will turn to weather. With the drought affecting much more of the country compared to a year ago, getting timely rains will be critically important to achieving trend yields this crop year. This will keep the trade extremely volatile as we trade one weather map run to another. Therefore, we encourage producers to have a balanced approach to their marketing plans (See the last week's blog) as we are setting up for a highly volatile summer of trading.
If you have any questions, contact me at [email protected] or any of the AgMarket.Net team at 844-4AG-MRKT, 844-424-6758.
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The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
About the Author(s)
Hedging strategist, AgMarket.Net
Before joining AgMarket.Net, Jim was a senior broker with a nationally recognized firm and has 24 years of experience as a registered commodity representative, servicing both commercial and individual trading and hedging customers. He specializes in hedging and trading strategies using combinations of forward contracting, futures and options for corn and soybean farmers and livestock producers. He has a Series 3 futures brokerage license and earned a bachelor’s degree in Agribusiness Management from Purdue University.
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