Tim Hannagan: Three interesting days
We're at a very interesting point of the year in grains. Harvest is beginning so were equally hearing as much bullish yield news as bearish.
The Bears talk of the miracle of biogenetic seeds while the bulls look at the weather being too hot and dry in the southern Delta and Eastern Grain belt to see anything other than lower yields.
All the weekly crop condition reports each Monday now go to the sidelines as funds look to the harvest for final crop variances. Next week all attention turns to the Friday, September 10 USDA monthly crop report. The week begins Tuesday, as all markets are closed Monday for our Labor Day holiday.
That leaves just three days for the market to get in position ahead of the 7:30 AM central time crop report release. We have to expect the market to strengthen in prices on several fronts.
First, we note that the market place trades the fear before fact. The fear is that the crop report may show a sharp increase in export projections for the 2011 marketing year and sharply lower ending stocks as a result. This leads to short held positions buying them back, while aggressive speculators buy long. This fear comes from production problems from foreign exporting port countries.
Germany, the second biggest exporting country in the European Union, looks to harvest 15% less wheat with Russia the world's third-largest wheat exporter cutting their summer wheat harvest by 30%. Pakistan is facing an economic catastrophe after floods wiped out farmlands and infrastructure.
Drought conditions in the United Kingdom have estimates on exports from their reports down 31% on wheat alone. World weather problems clearly suggest bigger exports out of the U.S. for wheat. But, also higher exports for feed grains such as corn and soybeans.
After all, if the wheat crop failed so did everything else from peas to potatoes. Traders have seen weekly export sales soar on U.S. feed grain reports the last month, setting us up for a bullish September 10 government crop report.
Traders should consider buying the October serial options as they are cheap and not to expire until September 24. They take you into and passed the September 10 crop report to benefit from price movement.
On corn, buy one October 4.50 call, sell one October 5.00 dollar call for 10 cents or $500 plus commissions .You have a 50 cent profit potential which comes out to $2500. You can buy the October 4. 50 call out right at 18 cents. Soybeans, buy one October 10. 10 call call and sell one October 10. 60 call for 15 cents or $750 plus commissions or you can just buy the 10.10 call for 22 cents. Wheat, buy one October 7. 10 call and sell one October 7. 60 call for 12 cents or $600 plus commissions or you can buy the 7.10 call out right for 25 cents.
PFGBEST Research Team