The Ted Spread

Has Corn Weathered the Storm?

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.

On Monday July Corn made a new contract low on the back of a bearish USDA report on Friday and the lack of a trade deal. By the closing bell however corn had managed to rally over 16 cents to close above Friday's high to put in a true key reversal. On Tuesday corn gaped higher and didn't look back posting another strong gain. Has corn finally found it's spring low?

Last week was dominated by panic in the corn market. The trade deal, which a week before had seemed eminent, completely fell through. To cap off the week the USDA announced a shocking 2.485 billion bushel carry over on their firs look into the new crop balance sheet. Market sentiment could not have been worse. However, even after a terribly bearish report on Friday corn managed to claw it's way back close to unchanged.

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On Sunday night corn was under significant pressure once again tagging a new contract low of $3.43 early in the day on Monday. But then something happened... Seemingly the market's attention shifted away from all of the negatives from last week to a potentially bullish story that had been flying under the market's radar - The Weather. By the end of the day corn had rallied 16 cents and closed over Friday's low. This is the definition of a bullish "key reversal".

This fear of the weather forecast was compounded Monday afternoon with the Crop Progress report. Corn and soybean planting came in well below trade expectations (30% compared to 35% expected, 9% compared to 15% expected) fueling the fire over planting concerns. For comparison, usually by the second week of may we have planted 63% of the corn crop. Illinois in particular was way behind at only 11% planted compared to 86% on average.

Going forward the weather forecast looks challenging for planting. While there will be a few days window in many areas this week an active weather pattern returns into the weekend and again next week. If this forecast colds up it will call into question whether we can actually get a 92.8 million acre corn crop planted in time. Currently, private estimates for this corn crop have already dropped 2-3 million acres and some believe a lot more could be lost to preventive planting (some say 6-10 million acres).

Doing some quick math, a 4 million acre reduction in planted acreage for corn cuts the USDA's projected ending stocks from 2.485 billion to 1.795 billion bushels (leaving all else equal). This could be a bad deal for the funds who were estimated to be short a little over 300,000 contracts (near record) coming into Tuesday. If the forecast holds true and we struggle to get this crop planted there could be more upside potential for corn as the funds would likely cover at least a large part of their short position.

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Give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action.  Ted Seifried - (312) 277-0113.  Also, feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.  Find me on twitter - @thetedspread 

July Corn Daily Chart:

Producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.

In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!

Ted Seifried (312) 277-0113 or tseifried@zaner.com

Additional charts, studies, and more of my commentary can be found at: http://markethead.com/2.0/free_trial.asp?ap=tseifrie

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION.