'Time to go golfing?'
It's going to be a rough couple of days for the grain trade in Chicago. That part's clear. Rough enough that traders say "it's time to go golfing."
What isn't quite as clear is, once the immediate reaction from Thursday's USDA acreage and grain stocks reports has dissipated, how the trade will proceed through the remainder of the summer. It depends on a lot of different factors, analysts and traders say.
Thursday morning found USDA pegging both grain stocks and acreage numbers higher than the trade expected. That sent the grains nosediving Thursday morning at the open, and analysts agree that slide will take a day or 2 to even out.
"We will come in with acres much lower than what we saw this morning, but the trade was prepared for a 600 million-bushel ending stock for old-crop [corn] and the possibility of needing a 158 (bushel/acre) yield to avoid catastrophe," says Terry Roggensack, market analyst with the Chicago-based Hightower Report. "Now, we're looking at a more comfortable situation. Traders were also net-long coming into this report. We're going to see some pretty serious liquidation."
So, it's a foregone conclusion that the bears will rule the CME Group grain pits for at least a couple of days. Then what? Longer-term, the higher-than-expected stocks and acreage numbers will "give the trade a lot of breathing room," but questions surrounding "found acres" in Thursday's report make the August crop estimates, which will take into account both acres and yield projections, much more important to the overall crop picture this year, says Linn Group grain market analyst Jerrod Kitt.
"We basically found 300 million bushels of corn. A lot of people were trying to price in a rationing scenario with the July contract. This gives the trade a lot of breathing room," Kitt says. "The acreage numbers are kind of a fade trade. The numbers in August are going to be much more significant."