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WEATHER PLAY


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   As we head into July we meet a month that brings great apprehension to farmers and eventual end-users of grain such as exports, feeders, and ethanol users. These last three need large stocks at low prices to turn a profit. This fear in July comes as the crop yield and price is determined by something out of their control, “WEATHER.” Farmers spent all June planting record corn and bean acres to keep pace with another year of world record demand with the optimistic saying ending stocks will remain safe if timely rains come. Farmers are quick to respond with, “IT’S NOT WHAT YOU PLANT, BUT WHAT YOU GROW.” This year brings a heighten nervousness as a weather pattern know as EL-NINO has brought much warmer than normal weather to the grain belt since April but timely rain as well. Fear is hotter than normal in July could also bring dryer than normal. July is when corn moves thru pollination with yields made or lost for the season. Corn needs 1/3 of its total growing cycle moisture to achieve normal yields during this time. Beans enter its key pod setting stage late July  and it too wins or loses the yield game but that pod setting stage won’t end until mid August. Our June 30th planted acres and stocks report put even more fear in the market and increased the importance of timely rains. The acreage report put corn acres planted this year at 87.872 million acres this was 926 thousand acres under the last acreage report March 31st.  It was 228 T.A. under the lowest national pre-report trade guess and 1.430 million acres under the average pre-report guess. The quarterly stocks on hand report came in at 4.310 billion bushels. This was 301 m.b. under the lowest national pre-report guess. As demand and usage continues to be greater than trade expectation. Our current projected ending stocks for our 2010-11 marketing year is 1.573 b.b. The acreage and stocks report cut about a half billion bushels off expectations. Expect the Friday July 9th, U.S.D.A. monthly crop report to show a large drop in the carry over or ending stocks reserve to factor in lower acres and stocks. Though the bean acreage report raised planted acres to 78.868 M.A. up 576 T.A. from the average pre-report guess. Traders believe that the number was pre mature as 3m.a. are still unplanted and heavy rains in Iowa and parts of the western grain belt will see acres abandoned in the lieu of crop insurance bringing the ending number closer to 74 or 75 m.a. Additionally, quarterly stocks of 571 m.b. were 21 m.b. under the lowest average pre-report estimate furthering talk that production cannot catch up with demand. This too sets up a chance for a bullish crop report on lower ending stocks July 9th.

 

When traders return Tuesday after the 4th of July holiday, weather will be 90% of our pricing influence with corn and beans in need of building a weather premium in the market. Traders won’t want to be short ahead of the July 9th U.S.D.A. report and speculators will want to be long so expect strength in prices prior the report’s release. Long term traders for July consider buying a September 3.80 corn call for 12 cents. If we turn hot and dry, we could soar into 4.00 area. For protection buy the august 3.55 put for 7 cents on 400 dollars. It expires July 23rd and if weather is perfect and outside market pressure, 3.20 could be tested. Bean lovers consider buying the September 9.20 bean call and sell the 10.20 call for 20 cents. It takes you thru the growing season with 1 dollar on 5,000 potential.



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About the author


Tim Hannagan joined PFGBEST Research from Alaron Research, with more than 25 years of experience as a futures and options trader for retail accounts.  As a Sr. Grain Markets Analyst, Mr. Hannagan has helped not only his investor clients but also media, grain producers and corporate executives wishing to sense, identify and capture the slightest moves in the grain futures and options markets.  His concise and analytical research reports appear every trading day and can be accessed at www.pfgbest.com/research.

For 10 years, prior to joining Alaron, Hannagan was Vice President and Senior Market Analyst for Harvey Commodities.  During that period, he refined his trading methodology and developed a centralized focus on individual trading clients.  It was here that he developed and tested the technical reversal system he created to enter and exit all trades.

Mr. Hannagan is a nationally recognized expert on grain markets and his opinions frequently appear in The Wall Street Journal, Barron’s, Futures Magazine, Investor’s Business Daily and other periodicals as well as on international newswire services and online blogs and commodity news services.  He also has an impressive list of broadcast appearances.

Tim Hannagan
Sr. Grain Markets AnalystPFGBEST

Phone: 800.935.6487
Email: thannagan@pfgbest.com

PFGBEST is among the largest non-clearing U.S. Futures Commission Merchants, with customers, affiliates and brokerage offices in more than 80 countries. The company is a leader in sustainable investing through diversified products including managed funds, futures, forex, options, full-service and discount brokerage, trader education, market research, and direct online futures trading through its BESTDirect® platform, and numerous other platforms and applications.

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