Inside Futures: Relevant trading-focused information authored by key players in the futures, options and forex industries

Corn or Soybeans in 2016?

After reading one of the dozen or more reports on next year’s crop production a thought occurred to me. Do farmers still choose what they will plant from year to year? Now that estimates pop up daily on acreage for 2016/2017 corn and soybeans, are farmers controlling what they will plant?

Of course the answer is yes. But over the next month or two, as forecasters and analysts try to guess where prices will be in a year from now compared to inputs at planting, the estimates will bounce back and forth. My conclusion is estimates make good print.

Especially over the past couple of years, it has become painfully obvious that farmers need to become better at marketing their crops, but when it comes to what they plant, it is almost the exact opposite side of the coin. The costs of inputs and expenses are often known down to the penny. As soon as combines begin taking in old crop, the data is being collected and crunched, comparing costs with possible production settings to the coming year.

Before combines are washed up and put away, farmers are being visited by seed and input sales people, as it happened this past year before crops were marketed.

I’m simply trying to point out that now, mid-January, for many US farmers jumping back and forth over the fence of what should or shouldn’t be planted is good for fill on reports, but probably far from realistic. When it is estimated that 70 plus percent of old crop corn needs to be sold, estimated what will be planted for the coming year is putting the cart before the horse.

Review Last Months Recommendation – Buying Corn

At the end of December, I suggested buying calls or selling puts against short corn futures or taking profits on part of short futures positions. Now that Argentine grain is moving in the pipeline and soon US farmers will move more old crop grain for cash flow needs, I suggest:

  1. Selling Futures.
  2. Selling Calls
  3. Liquidating Short Puts


December corn, if it moves up to the overhead line (green) around $3.93 will be about an 18 cent move off the low. If holding old crop, take advantage of the front month basis in most areas of the Midwest that is tighter than back months. Do not buy calls to replace cash sales; instead sell calls. For instance; July 2016 corn $3.80 calls as I write are near 20 cents with July at $3.77. To breakeven July futures would need to be above $3.97.

Chart from eSignal Interactive

Cotton Price Unravels as Supplies Rise – WSJ

Cotton Price Unravels as Supplies Rise

Rain in Texas Is Expected to Boost Crop; Slower Global Growth Could Hurt Demand

July 27, 2014 2:07 p.m. ET

Cotton prices have retreated to the lowest level in nearly five years as investors worry that global production could overwhelm demand for the fiber.

The U.S., the world’s biggest cotton exporter, is expected to produce a large crop in the season that begins Aug. 1. But global demand is likely to fall short, especially with top importer and consumer China wrapping up a 2½-year stockpiling program. U.S. government forecasters predict the amount of cotton left over in warehouses world-wide when the next season ends will reach an all-time high of 105.7 million bales.

“That’s going to weigh heavily on world supplies,” said

John Flanagan,

president of brokerage Flanagan Trading Corp. in Fuquay Varina, N.C. “Prices are on their way down to the 50-cent level.”

Growing weather has improved. Bloomberg News

Cotton prices last traded around 50 cents a pound in April 2009. On Friday, cotton for delivery in December, the most actively traded contract on the ICE Futures U.S. exchange, fell 1.1%, to 65.35 cents a pound. It was the lowest closing price since Oct. 12, 2009, and down 3.5% for the week. The front-month contract, for October delivery, ended down 1.9%, at 65.16 cents a pound.

“We’ve had great weather and that’s got everyone on the run,” said

John Payne,

market strategist at Daniels Trading in Chicago, referring to growing conditions in Texas, the top U.S. cotton-producing state.

After years of drought, Texas has begun to see rain in cotton-growing areas. Government forecasters, citing the rainfall, recently increased their estimate for U.S. cotton output during the 2014-15 season by 10% to 16.5 million 480-pound bales, exceeding market expectations for a 4.7% upward revision to June’s estimate.

There are also concerns about weakening demand. The International Monetary Fund recently cut its global economic-growth forecast for this year to 3.4% from an April estimate of 3.7%, damping sentiment in the cotton market. Cotton prices are particularly sensitive to economic data, because demand for the fiber is tied to consumer spending on items such as apparel, bed sheets and towels.

China had been a major support for the market, quadrupling its stocks since it began a strategic purchasing program in late 2011. But that program is wrapping up, as China has had trouble unloading its massive stores of the fiber on the domestic market.

The recent drop in cotton prices could spark defaults from mills that contracted cotton at higher prices, said

Jordan Lea,

co-owner of Greenville, S.C., cotton merchant Eastern Trading Co.

After prices plunged from a post-Civil War high three years ago, a wave of defaults by mills hit balance sheets at some of the largest cotton traders, setting off a surge of legal battles, some of which are still unresolved. “It’s always the elephant in the room,” Mr. Lea said. “Anytime you get a move down like this, the risk exists.”

Fain Shaffer,

president at Infinity Trading Corp., a brokerage in Indianapolis, expects prices to slide to 60 cents a pound in the near term. “We’ve got large production and questionable demand,” he said.

—Leslie Josephs contributed to this article.

Write to Alexandra Wexler at

Soybeans Extend Slump on USDA Data as Corn Drops to 5-Month Low – Bloomberg

Soybeans Extend Slump on USDA Data as Corn Drops to 5-Month Low

Soybeans extended the biggest slump in five years to the lowest level since 2012 after a U.S. government report showed farmers will plant record acreage. Corn declined to a five-month low.

Soybeans for November delivery lost as much as 0.6 percent to $11.505 a bushel on the Chicago Board of Trade, the lowest level for a most-active contract since Jan. 12, 2012, before trading at $11.51 by 10:22 a.m. in Singapore. Futures plunged 5.8 percent yesterday for the biggest drop since July 2009.

Seedings in the U.S. will reach 84.839 million acres, up 11 percent from a year earlier, the U.S. Department of Agriculture said in a report yesterday. Inventories on June 1 were 405 million bushels, larger than the 382 million estimated by analysts in a Bloomberg survey. About 72 percent of the crop was rated in good or excellent condition on June 29, up from 67 percent a year earlier, the USDA said in a separate report yesterday. The U.S. is the world’s biggest grower.

“The market is now looking at the conditions of the U.S. crop, which is quite good as well, and started to build in some large expectations for new crop,” Paul Deane, an analyst at Australia & New Zealand Banking Group Ltd., said today by phone from Melbourne.

Corn for December delivery fell as much as 0.9 percent to $4.215 a bushel, the lowest level for a most-active contract since Jan. 21, before trading at $4.225. Prices dropped 4.9 percent yesterday, the biggest decline since June 28, 2013.

Futures tumbled 15 percent in the second quarter, the most since the three months through June 2013, as stockpiles in the U.S. reached 3.854 billion bushels following record production last year, the USDA said. The average estimate of 26 analysts surveyed by Bloomberg was 3.723 billion bushels.

Wheat for September delivery rose 0.5 percent to $5.805 a bushel, rebounding from a 17 percent slump last quarter, the biggest decline since June 2011. Prices dropped 2.7 percent to $5.775 yesterday, the lowest since Feb. 7.

To contact the reporter on this story: Chanyaporn Chanjaroen in cchanjaroen

To contact the editors responsible for this story: Jake Lloyd-Smith at jlloydsmith Ovais Subhani

Capital Press | Report: Investors pulling money from commodities

After a decade of blistering growth, global commodity prices have generally been declining since 2012, and the financial sector has begun withdrawing its sizable investments from commodities markets, according to a new economic report by Washington, D.C.,-based Worldwatch Institute.

However, the independent research organization’s report finds agricultural goods have fared better than most other commodity classes.

Though commodities traded on public exchanges saw a combined 6 percent decrease in prices during 2012, agriculture — helped by limited supplies due to a severe drought — energy and precious metals were the exceptions, making price gains, according to the report.

“If the drought hadn’t hit, I think agricultural prices would have been maintained or in line with other commodities and dropped a little bit,” Konold said, acknowledging population growth and increasing variability in weather could help buffer agriculture from future sharp declines.

Prior to 2002, Konold explained, commodities were demanded primarily by developed nations, and prices were in a gradual decline. Konold said that’s when developing economies in countries such as China, Brazil and Russia began entering the fray, with insufficient capital expenditures in equipment and production capacity constraining supply.

Commodity prices surged by an average of 9.5 percent per year over the next decade and investment poured in, a phenomena the report describes as the Commodity Supercycle. The exception to the rapid growth was 2008-2009, when the start of the recession hurt prices of the major commodity classes, except precious metals.

Global investment in commodities, which totaled $10 billion at the start of the 2000s, increased to $460 billion by the end of 2012.

Konold believes demand for commodities cooled in 2012 because the largest developing nation, China, took steps to curb inflation after years of record-setting growth largely driven by a construction boom.

Furthermore, large investment banks that turned to commodities for safe harbor during the recession have begun pulling out their money to balance their portfolios as the economy has improved. This year, through the end of April, commodities lost $63 billion in investment.

“So far in 2013, we’re seeing a continued slow-down of commodity prices and a continued exodus of finance,” Konold said. “It will be interesting to watch if that reduction continues and at what pace. That will give us an idea of if it’s a full-on mass exodus or if prices will stable out, and this is the modern commodities market.”

University of Idaho Extension economist Paul Patterson noted the Chinese “can’t produce enough of their own food, so they’re still the majority player in agricultural commodities.”

Prices of major agricultural commodities are declining this year, and economists were predicting declines in 2012, prior to the drought. Rather than a broader trend, Patterson believes the fundamentals of supply and demand have affected agricultural prices.

Patterson agrees investment banks will continue pulling funding from agriculture and other commodity classes to invest in stocks and other options in an improving economy.

But he insists that’s not necessarily a bad trend, provided that the money is taken out gradually so the market has time to adjust. Patterson believes over-investment in commodities tended to drive “high prices higher and low prices lower,” and the volatility increased market risk.