Grain Spreads: Corn Addressed, Soy Unknown

Sean Lusk General Commentary Leave a Comment

Two big reports to start the week and aside from weather events will most likely set the tone in the grain market until the month end quarterly stocks report. This mornings WASDE report was much more aggressive in altering US corn production, that cut US corn acreage and slashed yield. Planted US corn acres were lowered three million acres which seems light in my view. Last night’s data showed planting progress soaring to 83 percent planted. However major corn producers still lag behind. Illinois at 73 percent, Indiana 67 percent, Wisconsin 68, Ohio 50, Michigan 63, and South Dakota at 64. Emergence in these states was at best only 50 percent with most at or below 40 percent emerged on June 10th. Yet the USDA gave condition ratings at 59 percent good to excellent. With emergence so low I’m not sure why they bothered. The USDA lowered yield a massive 10 Bu/Acre to 166 BPA. Both changes in acres and yield are record large for a June report. Old crop corn stocks were raised 100 Mil Bu amid reduced exports. New crop US corn stocks were lowered a staggering 810 Mil Bu (33%) from the month prior. New crop corn stocks/usage came in at 11.8% which I believe is the lowest since 2012.

The USDA was essentially idle with its 2019 U.S. soybean production estimates, meantime, holding that number steady at 4.15 billion bushels from last month. USDA also held acreage estimates steady, at 83.8 million acres, with per-acre yield projections of 49.5 BPA also unchanged from May. New crop US soy stocks were lifted to 1,045 Mil Bu, vs. 970 Mil projected in May. The USDA simply didn’t have much to draw on since there wasn’t much planted as of June 1st and therefore futures finished the day up one penny. Planting progress jumped on the week to 60 percent vs the five year average at 88 for beans. However emergence is only at 34 vs a five year average of 73 percent. Major producers plantings show Illinois at 49, Indiana 42, Missouri 37, Arkansas 66, South Dakota 43, Ohio 32, and Wisconsin at 60. I think there maybe a story here as thoughts of lost corn acres going to beans maybe held up some given weather events. There are massive amounts of rain in the 1 to 5 day starting tomorrow and 6 to 10 day forecasts that extend from Oklahoma and Kansas in the south and west through Arkansas, Missouri, Illinois and into Indiana and Ohio through June 20th. Some areas bring 3 to 5 inch totals in a short amount of time according to current European model forecasts. Its my thought that as producers race to get corn in this week prior to rains showing up, that beans could be delayed in these major growing areas into month end. While beans can be planted into 4th of July in most areas, I wonder how viable it is regarding future yields. Time will tell but if we learned anything from these last two gov’t reports, there are many more questions than answers at this point. Therefore I think the path of least resistance is higher here in corn and soy until the market has an idea of what this crop is or isn’t. Look at some inexpensive call spreads in soybeans like the Aug 900/940 or Sept 900/950 call vertical. They cost 8 to 10.4 cents respectively plus commissions and fees and I would risk 4 to 5 cents per spread per entry using a stop loss. Call me with questions. These are generic strategies but they allow for relatively inexpensive exposure into the market for what could be an explosive summer growing season in my opinion.

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