Sell, buy puts, sell calls - sell anything in grains, analyst says
Markets came roaring back after the Memorial Day Holiday, fresh and intent on moving higher due to the freeze in northern areas of soybeans and corn, and many other crops.
Of course, most corn had the growing point still below ground, so the primary damage was burning the leaves off the corn. Soybeans have a different process, as the growing point is above ground immediately upon emergence. So, any soybean plants fully emerged and subject to freezing temps will probably need to be replanted.
The market rallied loudly, only to be reminded in the crop progress report Monday afternoon that pretty much every crop has above-average yield potential, as of June 1.
In the meantime, all the Pro Ag targets for making catch-up sales have been hit by Tuesday morning and in overnight trade, as we’ve recovered about 50% (more in some commodities) in all grains to make these catch-up sales. Also, speculators can sell call options in wheat, corn, or soybeans but we would prefer selling corn calls today. A telltale sign that this is just a bounce back in a bear market is whether the funds selling emerges after 8:30 a.m. to liquidate their long positions (after possibly goosing the market higher overnight).
While yesterday’s breathtaking rally cited freeze damage on grains in May as a reason for a new rally, the reality is there may be little or no impact on most crops yield potential.
There are two reasons:
- Corn will grow back from the growing point below ground.
- Soybeans frozen will be replanted in early June.
In both cases, the yield potential is still about the same.
Crop conditions also throw water on this rally, as the corn conditions were rated 76% G/E, much higher than the 70% anticipated by traders, and also above last year’s 74% rating. Pro Ag yield models indicate a 179.33 bu/acre yield potential vs. trend yields of 176.95, and USDA’s trend guess of 179.5.
The fact we still have an above-trend yield potential, early planting (even more yield can be added for that), and relatively adequate soil moisture suggests an above-average crop in 2021.
Corn is 95% planted (8% ahead of average), with soybeans 84% planted (17% ahead of normal). Even if we have to replant 10% of soybeans in early June (which is certainly high), we still are 7% ahead of normal planting, meaning an above-trend yield is likely in soybeans as well. Winter wheat conditions also improved 1% to 48% G/E at a time when conditions normally decline – meaning yield potential improved another 0.1 bu/acre to 51.5, now a bushel above trend 50.56.
Everywhere you look, the 2021 crop is above average with almost no immediate threats in the Corn Belt. However, HRS wheat has its problems, with the western Dakotas very dry and in need of a rain. HRS ratings dropped 2% to 43% rated G/E vs. 80% last year, so it’s in bad shape in the West.
This is the only remaining drought area left in the U.S., but it still hasn’t received the rain it needs (even though rain has been all around them).
Other crops are still doing well in planting, with sunflowers 42% planted (7% ahead), HRS wheat 97% planted (4% ahead), barley 95% planted (1% ahead); barley conditions actually improved 1% to 48% G/E.
Pasture and range conditions nationally continue to improve, up 3% this week to 31% rated G/E. Soil moisture levels nationally also improved 3% topsoil to 71% adequate/surplus, with subsoil +1% to 65% adequate/surplus: Moisture levels in the corn belt are continuing to improve. It’s HRS wheat areas that are not (yet).
Today is a day to sell, buy puts, sell calls – sell anything in grains.
It could be the best sale made all year, and it’s after the top has probably occurred (making the accuracy of this sale timing more likely to be correct). The only market still with bullish news is HRS wheat; but the question is, has the recent $2 rally in HRS wheat been enough for the drought we have so far? And where will the weather go from here?
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