Special Market Update

Corn

All weather now. After typical May break in futures (everything planted, emerging and no weather to trade) corn futures rallied hard on Friday. Hot and dry the theme in the Northwest and in Iowa. Some parts of the corn belt still sparse on Soil Moisture. In May the December 21 new crop contract dropped $1.38 from the high of $6.38 to a low of $5.025. Looking at retracement levels, market now trying to retrace to the upside. A 50% to 61.8% retrace got CZ21 futures back to the $5.70-$5.85 range in just 6 days of trading. First target for the bulls is the 61.8% retrace of $5.85 and then a close above $6.00. Market expects more corn acres in June 30th report, but yield is the bigger story. For example, 2 million more corn acres but a drop in yield of 8 bpa would take ending stocks down to about 1 billion bushels. That same acreage number and a yield of 176 bpa (linear trend yield) would put ending stocks at about 1.4 billion bushels, and pricing models indicate swing in prices of about $1.20 or more depending on the bpa. Again, everything planted and emerging but now market is trading the weather. World ending stocks are tight with Brazil crop problems and it is all about U.S. yields. Watch the close today and look for a close above $6 to get the bull horns on.

Risk management would argue that locking in price floors and leaving upside open is a good way to manage risk and trade a weather market. Targets for Price floors would be in that 50-61.8% retracement off the lows, or in the $5.70 to $5.85 range. Put options, min max contracts, min price contracts can all be used to lock in profits and leave upside open. Remember just a few days ago the December 21 contract traded down to $5.00 and market has already traded a $1.38 range in new crop corn. Changes in weather forecasts and expanded limits make this market extremely volatile and a $1.38 range could easily look tame this summer. 

Soybeans 

Same story as soybeans rallied on Friday on weather and strength in soyoil. Soybean new crop contract looks relatively tame compared to corn. After November 21 soybeans hit a high of $14.61, market fell $1.36 to a low of $13.25. Market gapped higher Sunday night and is now trying to break above that previous high. Glancing at Volatility indicates it took 10 days to drop $1.36 and now market has regained that in just 7 days. Closes today above the $14.60 market would help the bulls and target $15.00 futures. Comments on weather markets and risk management on new crop corn also apply to new crop soybeans. With expanded limits a $1.36 range could look tame this summer. The one big difference in soybeans is the market seems to be trading at most 90 million planted acres to beans and not looking for a big increase as in the corn market. Fundamentals here in the U.S. still look strong with very tight old crop stocks and no room for weather problems. Even with higher acres a cut of 2 bpa takes ending stocks back into the very tight numbers we see this year. Brazil has a large crop this year, but this kind of U.S. yield would send soybean demand back to Brazil and put a halt to world ending stocks increasing.