All eyes and ears from people involved in agriculture will be focused on tomorrows WASDE report coming out at noon EST. I have posted previously the estimated acres from February's report but those numbers are expected to change if the trade experts are to be believed. The grid below shows the estimates from a Reuters poll which shows a drop in corn and an increase in soybean acres. This would be the first time in this countries history that soybean acres exceeded corn acres.
Brazil’s soybean harvest is now 65% complete vs 62% average despite wetter than normal conditions. Yesterday, AgroConsult raised its Brazilian soybean production to 118.9 mmt (new record) vs their February estimate of 117.5 mmt. It is just hard to find any good news that would support soybean prices.
Below are technical charts for corn and soybeans. Once these moving averages, oscillators and what not turn lower, it usually means that the smart money traders have lost interest and have moved on to trade other things. Now tomorrows report could change this for a short while but what usually happens is that it takes extreme weather events (as well as extremely lower prices) to attract buyers back into the market.
The market does not always want to do what we expect or want. That said, if these numbers hold true I would expect higher corn prices and lower soybean prices. If you have not made any pricing moves, I have a few ideas which I have posted below.
On the corn page there are three option strategies that I recommend. These strategies obviously show a bullish bias due to the trade estimates that have been reported.
1. Buy May $3.80 calls now to re-own bushels sold on the recent rally ahead of tomorrows report. These calls are currently trading at around $.0425 cents.
2. Buy September $4.20 calls at $.10 cents as "courage calls" to support making sales this spring or summer. These calls are currently trading at $.145 cents. It would likely require September corn to trade to $3.80 for this order to get filled.
3. Sell December $3.50 puts at $.08. Selling the bottom end of your subsidized revenue insurance protection near the average harvest price of 3 of the last 4 years to generate premium to offset the cost of your MPCI policy or options that you bought. These puts are now at $.07 cents.
The soybean strategies below show a bearish bias due to a good South American harvest kicking into high gear, slow exports domestically and more US acres expected to be planted this spring.
1. Buy the May $10.00 put option today at $.08. These options won't expire until April 20, so they'll protect against USDA, Brazilian and political risk for about 4 more weeks.
2. Buy the November $9.80 put and sell the $10.80 call. Today, this spread would trade for a net cost of zero cents. This puts a net floor in Nov futures @ $9.80 while accepting a ceiling at $10.80.
If you have a commodity broker you are using, feel free to forward this information if you desire to participate in these strategies. If you need a broker, I am happy to help you open an account with me. Just click on this link and follow the instructions. https://www.rjobrien.com/Esign/index.php?broker=37213 Call or email me if you have any questions.
Grain prices have been stellar. Something you don't see very often is for sentiment in the ag sector to outshine every other sector......especially this time of year. The little chart to the right from Sentiment Trader shows the average sentiment levels for different sectors. Let me warn you that there will soon be a huge pendulum swing back the other way. Its not just that everybody is on the ag side of the boat but nobody is on the stock, gold, or bonds side of the boat. Professional traders love selling in overbought sectors and moving their funds into un-liked sectors. While the ag sector is the flavor of the day so to speak, I would expect the big money traders are already accumulating positions in other sectors that are out of favor at the moment.
A few more pieces of the puzzle have come together for the 2018 crop year. We now know what the crop insurance guarantees will be. The base price was set at $3.96 for corn which is identical to 2017 and $10.16 for soybeans which is .03 lower than last year. It is a little weird that these base prices came so close to 2017's base prices. Despite the prices being similar to last year, the volatility factors used to determine the premiums are quite a bit lower. You should expect your crop insurance premiums to be lower as a result.
The chart below left is the December corn chart and the chart to the right is the continuous weekly corn chart going back 3 years. On the 3 year chart, the Stochastics and the RSI indicators are higher than they have been in 3 years.
Optimism is at the second highest level in 5 years! The last time optimism was this bullish was in the summer market of 2016! Seriously folks, this market will run out of buyers soon and the market is going to leave you holding the bag if you don't get something done. If you are afraid to contract through the elevator on a crop you have not planted yet, then consider using the option strategy that I have diagramed further below. You can bail out of those at any moment.
The soybean market looks even more overbought to me than the corn market does. Soybean prices blew threw the summer high on the daily chart to the left, but notice that prices could be reaching some resistance on the weekly chart from the 2016 summer market highs.
The soybean optics have reached overly optimistic levels. Again, the last time bean optics reached these levels was during the 2016 summer market. You have to make sales when prices reach these extremes! Remember the professional traders I mentioned at the beginning of this post? They have already recognized that there is limited upside to these prices in March and are looking for other assets to trade that are bottoming.
As I have said many times already, you have got to sell this crop. What if you have contracted every bushel of grain that you feel comfortable obligating yourself to at the elevator? Then you would want to consider an option strategy such as the ones I have laid out below. I explained these in detail last week so I won't go into a lot of detail now. I will just say that the bump in price has allowed me to raise the floors a level without changing the cost.
If you need a brokerage account, the easiest way I know to open one is to click on the link below to begin the process. It usually takes a day or two to get one opened. You may call me if you have any questions about the plans or general brokerage questions.