USDA Eve: Positioning for the Big Reveal

Rumors and reports of separate negotiations between the US and Iran (Straits) and Russia and Ukraine (safe grain transport routes) pressured prices from the morning highs as the fear of major political/logistical breakthroughs and Wednesday’s USDA report sent traders to the safety of the sidelines. Major technical support barely held for the grains, but beans fell below it for the first time in 5-weeks causing even more heartburn for the bullish leaning funds. All of today’s news will get a jolt from the USDA tomorrow, so be ready for extreme volatility heading into the weekend.

News and Notes:

• Rain for the central and ECB (too much in many areas) and hot/dry for the WCB and the Plains remains the US pattern into mid-month.
• The pre-report estimates for Wednesday’s USDA report are on Page 2 with planted acreage and yield the most closely watched numbers. There are so many other demand columns that will figure into the domestic and world ending stocks, it will take a few minutes to dig through all the calculations that set up whether the report is bullish or bearish. The demand profile has been strong, but if an extra 1 MA of harvested acres is reported, it will take another 175 MBU of demand to offset it. The corn yield number has more wiggle room as it takes a 2 BPA yield increase (unlikely) to match finding an extra million acres. One interesting rule of thumb for the major yield reports is that the USDA has a very strong tendency to add demand when there are yield and acreage increases but cut demand on yield and acreage cuts. With the FSA/RMA registered acres figured into the USDA acreage, the acreage update is the column more likely to see a larger change than the yield column. The yield column will begin to get more attention in the September report and beyond.
• Pre-report positioning is always a confusing pursuit to make sure you are not risking more than your stand to protect or make. With September option expiration next Friday, the 21st, there are many short-term insurance policies in the options markets to both set floors and have upside for previously sold bushels. It is too late to get an account set up for Wednesday’s report, but if you have an account, please look at the Sep short-dated bean 1170-1140 put spread and the Sep corn short dated 450 puts. The short-dated options will trade off the Nov and Dec futures contracts. These strategies are cheap life insurance for an unpredictable event.
• China was noted as a buyer of US beans in today’s daily sales report with the Philippines making a routine bean meal purchase. No news appears to be good news from the planning meetings heading into the Sep 24th US/China trade Summit. China is slowly extending their good will with frequent bean and corn purchases to keep up the positive momentum. Using the 25 MMT’s promise of Chinese bean purchases by year end, China is roughly
• Crop conditions were not much of a surprise after last week’s rains with corn unchanged at 61%, but beans were down 1 % to 62%. Of the largest producing states, IL continues to cause concerns as ratings are just 61% for corn and 59% for beans, while their neighbor Iowa is leading the ratings with 78% and 77%. Oddly, both of Iowa’s crop ratings went down last week. The USDA is unlikely to address the disconnect between lofty yield expectations and below average crop ratings in Wednesday’s report.
• The August report has had some of the craziest trade before and after release and a good plan is to put sell offers well above the markets (if you are hedging) and buy orders well below the markets (if you are an end user). The markets often move 3-5% in seconds before the dust settles and cooler heads prevail. This report is one where having standing orders and being in front of a monitor (with live quotes) makes you appreciate that no person can move as quickly as the computer trading models. Wednesday’s report sets the table for the homestretch of trade into early harvest. Be prepared.

The report will be out at 11 central on Wednesday so you will have time to make some preparations in the morning if you have been too busy to make the phone calls. We will be out with an overview shortly after the release with the latest numbers and price updates.