Friday’s prospective plantings and stocks in all positions report laid out two major surprises and they were both in Corn. Before I begin, this report was dated March 1, 2019 so I’m pretty sure the USDA did not factor in potential acreage losses from the mass flooding in Nebraska and Iowa. The biggest surprise to many in the trade was the “extra” 300 million bushels of corn the USDA found in its stocks in all position report. This was the bearish surprise. It alters the balance sheet regarding ending stocks and stocks/usage. The finding calls into question the validity of these reports in my opinion and speaks to betting on both sides of the market ahead of any future WASDE or quarterly stocks report if at all. Old crop/new crop spreads took it on the chin in corn as well as the Dec 19/Dec 20 corn spread. (see chart below). The planted acreage number at 92.8 million acres most likely will be revised lower in future reports in my opinion. Trade psychology will turn to “Its not what you plant, its what you grow” moving forward. Finding another 300 million bushels just laying around citing decreased feed and ethanol demand is ridiculous for many reasons. Either prior harvests were understated or this number was deliberately entered bearish versus market expectations. It is what it is now. We have China in DC later in the week and wet forecasts for most of the Midwest in the next two weeks delaying any thoughts of producers getting into the fields and beginning to seed. Grains traded higher with beans leading the way today but below weekly resistance at 899.6 basis May. Corn climbed over 361 to close over 1st weekly resistance. Remember funds have enjoyed selling rallies since late November in corn. While profit taking may certainly be had here, I would look at cheap bullish bets and option strangles going forward. Buy Dec19/Dec 20 corn at 22 to 20 under with a stop at 26 under. Or buy the June corn 385 call at 3.2 cents, while at the same time buying the June corn 360 put for 3.2 cents plus commissions and fees as well. I look for volatility to increase in the next 4 to 6 weeks as we near planting season in the North.
Please join me this Friday for a grain and livestock webinar at 2:30pm Central. Signup is free and a recording link will be sent to your email.