Corn finished the day one cent higher while beans finished up 3 cents. After an overnight rally of 10 to 14 cents in both markets to 4.36 and 894.4 in corn and beans respectively, the market couldn’t extend and for the second consecutive session we fell back to near unchanged. the overnight rally came on two fronts in my view. First planting progress is woefully behind especially in the Eastern Grain Belt. For Corn, planting progress came in at just 67 percent vs a five year average of 96 percent and last year at 96 percent. A look inside the numbers tells us there’s real problems here. Illinois our 2nd biggest corn producer is at 45 percent planted, Indiana at 31, Ohio 33, Wisconsin 58, and Michigan 42. Other problem areas include South Dakota at 44, and Missouri at 69. These states are usually at least 90 percent planted or finished by the first week of June, but not this year. Weather remains wet in the Eastern belt this week according to the more accurate European Model forecasts and doesn’t exactly dry up next week either. While government intervention programs to aid and support producers are put in place, the corn market could be looking at 8 to 10 million acres lost by 4th of July Weekend. I would use any dips as buying opportunities if these forecasts hold true. The aforementioned States that are showing major planting decline are sizable producers that in my view could alter future balance sheets, i.e. (ending stocks). Best case scenario is the corn crop is 95 percent planted by June 24th with Illinois, Indiana, and Ohio playing major catch-up next week and the week after. Questions following that scenario will follow as key yield development time gets pushed back deeper into summer. Do we turn hot and dry following planting? Will cool and wet flip and to drought? What will late plantings mean for future yield? There are many scenarios that could play out here. Its been my experience that the market wont engage in any heavy selling into corn until they get a sense of what this crop is or isn’t. In my view that is weeks away. We have some major gov’t reports coming next Tuesday and at month end. Again my opinion here but I think dips need to be bought. Should rains dissipate sooner and planters get rolling soon, then may see a correction. That simply isn’t in the forecast as of this post.
For soybeans it may be a little trickier, but at the end of the day the unknown on late plantings and acres could prod funds to cover more shorts. Corn has seen funds cover approximately 300 K shorts in May and perhaps a flip from short to long given the price action the last three sessions. Beans though have seen some short covering,but as of last Tuesday funds were still short 128 K contracts. That’s probably a little over stated but they are still short in my view. Ending stocks for beans are still massive and while the market has seen China make some light purchases for future shipment the last few weeks, it hasn’t altered the balance sheet much. The original thought a few weeks prior was that any lost acres from corn would simply go to beans. Now government aid programs, trade mitigation relief, and disaster relief funds may have altered that thinking. Please don’t ask me to explain what they mean as the gov’t has made it as complicated as one could imagine in my view. Ending stocks are a bearish overhang in the market without a weather issue. But we do have a weather issue and the ending stocks are a known in the market. Bean plantings are at 39 percent planted versus 86 last year and a five year average of 79. Number 1 producer Illinois at just 21, Iowa at 41, Indiana at 17, Ohio 14, Missouri 18, South Dakota 14, and Wisconsin at 34. Again big time producers way behind. Its true that this can flip quickly if weather cooperates but forecasts in the Eastern Belt may keep producers on the sidelines deep into June. If we see continued precipitation delaying planting progress, its my opinion that the path of least resistance is higher in both corn and beans. I would look to be a buyer of any dips. A few conservative trades to consider.
Corn-buy the Sep corn 450/500 call spread for 10 cents. Stop loss at 5 cents.
Soybeans: Buy the Aug 940 call and sell the Aug 980 call spread for 7 cents. Stop loss at 3.4
These are some simple strategies to get some long exposure in the market. I have plenty more that are aggressive and plenty of hedge strategy in all grain markets. Please call or email me at 888 391 7894 or slusk@walshtrading.com or join me for my weekly grain and livestock webinar every Thursday at 3 pm. We discuss supply, demand, weather, and the charts with trading ideas for both speculative and hedge. Sign Up Now