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Weather to Trump

06/27/2014 @ 10:03am

On Monday, June 30, the much anticipated quarterly Grain Stocks and Planted Acreage reports will be released. They will provide information for the market to interpret. As reports go, these are as big as any, yet in the end, will they have much influence?

This may be a year where, regardless of what the reports say, they won't have much impact. With crop ratings indicating that most of the crop is in good or excellent shape, weather beyond June 30 becomes more critical. Weather will either aid this year's crop on its way to being record large or, should weather conditions take a turn for the worse, provide a rally for prices since good weather may already be factored in (represented by low prices).

Prereport estimates indicate acreage for corn at 91.725 million, near the March figure of 91.69 million (the range is 91 to 92.2 million). With current crop ratings historically high, a lower acre figure could be supportive to price. If acreage were reduced 1 million, could corn prices rally much if crop conditions stay as good as they are? Probably not. The same can be said for soybeans, where the market is anticipating 82.15 million acres, which would be an increase from the March estimate of 81.5 million. Bearish price potential exists for both corn and soybeans if stocks and acreage are higher and good weather continues. Moving into the report, it is important for producers to consider a defensive posture.

One of the more important reasons is that the current trend is down and, if conditions and the report indicate bearish, the market could react with another push lower, as December corn futures might target $3.50. That is currently about 90 cents from where the market is now. This equates to a change in value per bushel of 20%. The story is similar for soybeans. November futures run the risk of pushing all the way down to $10.00 should a record crop be produced. Part of establishing a defensive posture prior to the report is to purchase put options. These will provide a price flooring mechanism and leave the top side open for price advances. This strategy is prudent in case there is a favorable report or if weather takes a turn for the worse.

If you have questions or comments, or would like help implementing strategy for the year ahead, please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.


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