January 31, 2020
Déjà vu. Some markets do the same thing over and over in similar situations or similar timeframes; there are patterns. Whether prices rally to ration demand or spreads widen to pay to store a crop while demand is weak, the market is expecting and achieving a certain result for its actions.
Here’s a marketing tip: Some of these market behaviors come at identifiable times that can help you make decisions.
Have you noticed the similarity between the lows in corn futures this past September and December? Both timeframes saw futures decline into option expiration while making major lows as the contracts were in delivery.
Think about it. Have you ever set basis on bushels but never set the futures price attached to it? Then you get a phone call from the elevator saying, “Hi best-farmer-ever, you need to price these bushels before Friday or roll them.” Your neighbor got that call too on their unpriced basis contracts, and so did their neighbor and the other producer three states away who didn’t price theirs. Then all those bushels are sold in a short period of time. Well guess what’s coming at the end of February? Another option expiration with another contract going into delivery is just around the corner. Use short term bounces to avoid being forced to price your grain during this window of time.
The USDA is somewhat predictable come spring. They’ll take the acres they say you told them that you intend to plant, and put a “trend line” yield on those acres. It happens every year on the May WASDE report. You’re not going to like it this year.
Did you know if USDA starts with a 94.5-million-acre intention for corn plantings and a 177 bpa yield, production would be nearly 15.4 billion bushels? 2016’s record crop was 15.1 billion bu. Even if USDA starts with the massive 14.8 bb demand seen in 2017, we’re still looking at a 2.5 bb carryout just to start.
In three of the last five years, Dec corn has made lows sometime in spring to early summer in the mid $3.60s. The other two years saw lows made before rallying into the summer high somewhere at least below $3.80.
Unless the USDA shows stocks have dropped significantly on the report at the end of March, it could happen all over again.
Now think back the past few years and remember sitting in your planter being pissed off that the crop you haven’t even gotten in the ground yet is trading below your cost to grow it. You don’t have to feel that way. There are puts that expire at the end of June, priced off the Dec ‘20 contract, and they might make your time in the planter more enjoyable.
Soybeans losing the battle
You’ve probably noticed new crop soybean values have dropped 60 cents from the high at the beginning of January. As we head into the timeframe that determines spring price averages for crop insurance, one could argue that the acreage battle isn’t going well for soybeans. But 10 of the last 15 years saw soybean values higher for the month of February. Only one of the last 15 years had soybeans values down back to back in January and February.
March futures closed the month of January at 872’2, just 5 cents above lows the January futures made in early December before smartly rallying 80 cents. Soybeans have been in a wild trading range for the last seven months and are at the low end of that range right now. Calls are cheap and the enforceable period for the U.S./China trade deal starts February 15.
There’s a disclaimer that “Past Performance is Not Indicative of Future Results.” We have to say this stuff to cover our butts. But there’s also the saying that history repeats itself.
Reach Brian Splitt at 847-946-2080 or [email protected]
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. AgMarket.Net is the Farm Division of John Stewart and Associates (JSA) based out of St Joe, MO and all futures and options trades are cleared through ADMIS in Chicago IL. This material has been prepared by an agent of JSA or a third party and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading infromation and advice is based on information taken from 3rd party sources that are believed to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. The services provided by JSA may not be available in all jurisdictions. It is possible that the country in which you are a resident prohibits us from opening and maintaining an account for you.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
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