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The tale of two markets

09/12/2013 @ 2:46pm

The main market theme for the last half of the summer has been a spread trade -- long soybeans and short corn. The lack of recent rainfall and the tight U.S. supply/demand situation were the catalysts for the trade. 

Any time one idea is so popular, it seems like major events like crop reports can be the death of the trade. Not today. Concerns about soybean crop size continue even after today’s numbers, while traders are comfortable with the corn crop.    

On its face, the report appeared to hit the bull’s eye on the soybean crop size with 3.149 billion bushels. Where did the sharp rally come from? As the statistics were analyzed, it appears many traders are concerned about pod weights. The derived pod weight was the second highest in recent history. Last year, pod weights increased dramatically as the late rains went straight to the existing seeds. So naturally, traders understand the exact opposite could occur this year, due to the high temperatures and lack of rainfall during August and the first days of September. 

As expected, the USDA did not make any changes to harvested acreage. They will reconcile FSA and RMA data with their surveys and make changes in the October report. Most are expecting harvested acreage to be lower. Using the RMA data released in the middle of August, some think harvested acreage for corn could be down 2 million acres, and harvested acreage for beans could be down ½ million acres. Keeping the market on its toes, the RMA should release another set of data on September 17. 

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The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

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