The information contained on this site is the opinion of the writer and obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in current market prices.
It’s a tool, not a toy! I’ve heard it from my parental units and I’ve said it to my offspring and their offspring and I believe it applies to the futures and option markets in which we participate. I work off the assumption that end users such as feeders and millers are long hedgers and always looking for the optimal month to take coverage of anticipated needs and producers/farmers are always looking for the best month to sell the crop in the field and/or still in the seed bag. Not, do I buy or sell, but what is the best tool and month of that tool to place my hedge.
The speculative community in my view pushes the markets to levels which give the buyer and seller opportunities to plan ahead and benefit. We have been focusing on the corn/bean ratio and corn/wheat spreads the past month and with new crop corn/wheat at or near or exceeding $2.00 wheat over. Per the USDA, when we have seen this spread widen this far, the data has shown that wheat seeding increases. Corn versus beans at 2.2 seems to be a good level to enter long corn vs beans. It suggests to me that at this ratio producers may do everything that they can to keep corn in the rotation next year in my view.
It is my belief that old crop wheat has a story given the European shortfall and minor quality issues in the Midwest. New crop July Chicago and KC with a $6 handle may potentially attract increase planting interest in the States and all European nations in my opinion. Mother Nature needs to help out with a little rain to get a good stand this Fall and that’s something we’ll be monitoring every day. We’ve been watching WH19/WN19 and KWH19/KWN19 calendar spreads. These are old crop/new crop spreads and a “cowboy” trade with much risk. My teachers, mentors, rabbis, priests, and gurus always emphasized caution and restraint with trading different crop years and one trading these should too. In the old days one can do the math and calculate full storage but, given variable storage rates that measurement can be fluid in my view. Yet, we sense that the world will be nervous into next Spring and Summer and the March 19/ July 19 spreads may have the tendency to strengthen (March 19 gaining on July 19) in my opinion.
Producers in the Midwest I have spoken with are still saying that a few rain events will fill corn and add bushels to the bean crop. Forecasters (National Weather Service) are calling for good chances of rain this weekend and we should be looking at and reacting to future rain totals and coverage on Sunday/Monday in my view. After that we’ll be looking at first notice day on the September contracts on August 31 and the USDA crop report on September 12 and all of the hubbub with precedes it.