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Can Corn Weather the Perfect Storm?


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TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS ANDMAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.

Corn has come under a significant amount of pressure for a number of reasons. Good crop conditions and a non-threatening near term forecast, a reversal higher in the US$ index and trade concerns have all played a role in the decline. Lately however geopolitics have taken center stage. With trade wars brewing on multiple fronts how will this end?

Crop Pop

So far this growing season has been nearly ideal for the majority of the corn crop with 77% of the crop in good to excellent condition. This is 10% higher than last year, a year we set a record national average yield. And, while there is a significant amount of heat in the short term forecast for the Midwest it is also not without rain. This leaves the trade considering yield potentials much higher than the USDA's current estimate of 174 bu/acre.

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Dollar Strong

Rising interest rates in the US while the ECB signals it will keep rates unchanged has also provided strength to the US$ index. A stronger US$ makes US exports less attractive on the global market as well as keeps inflationary concerns at bay domestically. An outside reversal higher day on Wednesday puts the US$ Index right back to recent highs and could find follow through to the upside.

Bad Trade

The stronger $US may be coming at a very inopportune time as well as President Trump is spearheading trade disputes with the US's largest agricultural buyers. Late Thursday news broke that Trump plans to announce on Friday that he intends to proceed with $50b in tariffs on China, a move that will likely bring swift and significant retaliation on US soybean and corn products. At the same time there is growing concern that Mexico is considering tariffs on US corn and soybeans and would use this as their second wave of retaliation.

These factors have all culminated in a nearly 50 cent break in the July corn contract in less than 3 weeks. The large speculators in particular have gone running for the doors. The uncertainty of the future of our trade relationships and our exports may be the most negative factor at this point. On Tuesday the USDA released a fairly friendly outlook for new crop corn and soybean ending stocks but this is being largely discounted by the trade as export estimates (and therefore ending stocks) can only be taken with a grain of salt.

Climate of Fear

While it is hard to say how much or the good conditions/weather, higher US$ and trade uncertainty has been factored into the market it would seem that it could be difficult to find strength in a climate of fear. When all is said and done the trade tiff(s) may be resolved before any major damage occurs to our exports leaving little impact on the USDA's balance sheets.

Any announcement of resolution could be met with significant enthusiasm. If the trade were given reason to believe the current USDA estimates are accurate there could be significant upside potential, but it is hard to get the market excited which such an important factor looming. In the long run I am still optimistic that corn prices could be significantly higher, but it may get worse before it gets better.

They're here! We have complimentary 2018 commodity reference calendars available. They are a little bigger than pocket sized and very useful if you follow markets. You can sign up for yours here -http://www.zaner.com/offers/calendar.asp(Shipping to the US only)

Give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action. Ted Seifried - (312) 277-0113. Also, feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit.Find me on twitter - @thetedspread

JulyCorn Daily chart:

Producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.

In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!

Ted Seifried (312) 277-0113 ortseifried@zaner.com

Additional charts, studies, and more of my commentary can be found at:http://markethead.com/2.0/free_trial.asp?ap=tseifrie

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION.



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About the author


Ted is a Vice President at Zaner in charge of the Zaner Ag Hedge Group.  He specializes in agricultural hedging employing various strategies using futures, futures spreads, outright options and option combinations.  He believes it is paramount to be able to use different strategies to adapt to market conditions.  Ted works with large to mid size grain and livestock producers and end users in North, Central and South America.  He also writes a blog on Agweb called “The Ted Spread”, frequently posts articles on Insidefutures.com and is often quoted in Reuters and Bloomberg.  
 
Please feel free to give Ted a call at (312) 277-0113, or shoot him an email at tseifried@zaner.com

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