Commentary
The average trade guesses for next week’s soybeans and corn come in as follows for next Mondays WASDE from USDA. For corn, the average trade guess is 182.3 bushels per acre (BPA) for corn, with a range of 180 to 184. For soybeans the average trade guess is 52.5 BPA with a range of 51.5 to 53.9. The bean market dipped today on two fronts. First, there doesn’t seem to be much of a weather risk in the market and as we move deeper into August, any weather premiums that are still in the market are leaking out slowly in my opinion. Secondly, China’s crush returns dipped back into negative territory yesterday which put pressure on beans in the overnight and towards the day session. Simply put, good weather and no demand usually pressures prices lower in a supply side driven market. For corn, we could see producers clearing out remaining bin space as harvest approaches, with record yields about to become possibly realized. USDA needs to cut harvested acres some to offset some of the increase in corn yields. The market needs a big cut in acres potentially around 1.5 to 2 million to offset and keep ending stocks from increasing well past 2.1 billion bushels. Unless they lower yield in a surprise from last month, the offset can’t be seen as negligible in my opinion. I have a feeling though we won’t see an accurate reading of this years harvested acres until the January crop report at the earliest. For those with unprotected bushels, please consider the following hedges into harvest.
Trade Ideas
Corn Options
Buy the November 24 4.00 puts. Sell the July 25 5.00 calls. Cost to entry even money plus trade costs and fees.
Risk/Reward: Unlimited risk here as these are corn hedges for producers. Looking to buy back at 50 cents under for a collection of $2500 per spread minus trade costs and fees
Should the market test 3.53 downside target which represents 25% down for year. We are out on a Close over 4.25 December futures or risk 1K per spread plus trade costs and fees.
Soybean
Trade Ideas
Options: Buy the Nov 24 10.00 puts and sell the July 25 12.00 calls for even money.
Risk/Reward: Unlimited Risk here as one is short naked calls, I would risk 1k plus trade costs and fees. This is for soybean producers only. My ultimate downside target at 30% lower on year at 9.09. Offer to exit at 1.00 puts over calls.
If weather flips to hot and dry second half of August, we will gladly step aside or a November bean close over 10.38.
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Sean Lusk
Vice President Commercial Hedging Division
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