Will the USDA Bombshell Stick?
Ted Seifried of Zaner - InsideFutures.com - Tue Jun 11, 7:52PM CDT

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY 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.

On Tuesday the USDA released the June World Agricultural Supply and Demand Estimates, or WASDE report. After a record slow pace to corn planting the trade wondered if the USDA would make a rare move and lower corn production estimates this early in the growing season. They did indeed, more than anyone was expecting. So what is in store for corn now?

To say that corn planting has been sluggish during this cold wet start to the growing season is a severe understatement. Planting progress as of June 9th had only reached 83% compared to 99% on average, and this was a significant improvement from last week. Fact is this was the slowest planting pace in the history of recording planting data.

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We know that late planted corn generally has less yield potential and can be at high risk for issues during pollination or from an early frost. We also know that the USDA typically does not change their acreage estimate until after the June 28th Planted Acreage report and any big changes in yield usually don't happen until August. Since the early 1990's the USDA has only broken from this schedule 5 times for yield and 4 times for acreage and only once did they change both on a June report.

Well, let's make that twice because this year the USDA lowered acreage 3 million bushels AND lowered yield a whopping 10 bushels an acre. This represents a 9% (1.350 billion bushel) reduction in production and caused sweeping changes in the balance sheet. After some tweaks in demand the new carry-over number went from a burdensome 2.485 billion bushels to a relatively tighter 1.675 billion. The corn market responded by reversing from down 7 cents to 12 higher.

So, what now? I believe the market expects that more than 3 million acres of corn will be lost. Theoretically we still had over 15 million acres of corn left to plant as of Sunday to hit the new USDA target. While this might be possible given ideal conditions, it is now very late and well past everyone's crop insurance deadline. Every day that goes by adds more risk for the producer.

The Planted Acreage report on June 28th could be very interesting, and potentially very bullish. If the USDA lowers acreage again the trade could immediately start penciling in a smaller carry-over. With the USDA unable to change yield or demand on this report, analyst's carry-over estimates are left to run wild in their imagination until the July WASDE.

For example, if the USDA cuts an additional 3 million acres this would lower production an additional 455 million bushels and theoretically lower carry-over to 1.220 billion bushels if demand were left unchanged. This is not how it works though, and demand would be lowered and would offset part of the lower production. But, between now and the report the bull's imagination may run wild.

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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

July Corn 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.