Market Movers: September Crop Production Report

Market Movers: September Crop Production Report


– David Hightower:
Welcome to Market Movers. I’m Dave Hightower
joined by Dan Basse. Dan, a lot of
roads converging here. We’ve got outside pressures,
we’ve got inside pressures, but now the USDA
is going to come out. Are we going to
change these yields? Are we going
to change demand? What’s up? – Dan Basse:
Well, the USDA report will be out
next Thursday the 12th, and the report
is widely expected to show a
lower corn yield, David. In general,
the biggest decline that we’ve ever had from
an August to September yield was back in 1983, when we lost
15 bushels an acre in corn, and five bushels
an acre in soybeans. I don’t think this will
be that kind of decline, but we could see maybe
a five-bushel drop in corn and maybe a
three-bushel drop in soybeans. – David Hightower:
And you look even further forward to weekly
crop progress reports. We’re going to need
good weather longer. Let the 6-10 and 8-14 day
show that good weather. What’s that going to
leave for the wrap-up? – Dan Basse:
I think we’ve got to have a crop that comes home. This crop was late planted. Of course, we planted
a lot of acres in June, over 30 million acres
of corn and soybeans. Those crops need to
make it to the finish line. The hard part from
a supply perspective is understanding
what a frost freeze may ultimately
mean for final yields. We could have an event
that really cuts quality but may not have the
biggest impact on yield. We’ll see when
that frost event occurs. Right now,
most people are giving it an all-clear
up to about the 20th. That last
ten days of September and first two weeks of
October are very important. – David Hightower: So, on the
demand side of the equation, we’re also going
to probably see some come out there, also? – Dan Basse:
I would imagine, if the crop comes down
in terms of size, we’ll cut
feed residual use in corn, likely a little bit on exports as this trade war continues with the
United States and China. That’s something
we are expecting. How far is always the question. USDA takes a
very methodical approach in cutting demand, especially this
early in the crop year. – David Hightower: And maybe
for some demand down the road, China’s national
average spot pig price, up 104% this year to date, up 40% in August alone. So maybe down the road, we’ll get a little bit of
increased corn and meal usage. What we take away demand,
maybe we’ll put back later. Before we dive
into our trade discussions, I’d like to point out that
these trades are examples and not recommendations
or advice. Dan, what’s your idea? – Dan Basse: We like
a bounce in the corn market, so we’re looking at buying a December 380
corn call at six cents. I’m willing to risk four cents,
or a close below two cents with an upside objective
of 14 to 18 cents. There is an
open chart gap, David. Somewhere around that
392 area for December, that’s where we’re
going to target if the report is friendly as we look to the USDA. – David Hightower:
I’m looking at that, also, looking at the market being
maybe a little bit overdone. So as an example, I’m looking to sell December
corn 360 put for 11 cents. I’m looking for an objective
of one cent on the puts. Since we’re receiving premium, I’m willing to risk
four cents on entry. Another trade is somewhat
out of the money right now, but I’m looking to
capitalize on a large break right into the report. Selling a November
soybean 820 put at ten cents, just ahead of the report. The market needs to fall, come down for that
premium price to be achieved, but I believe
there is some over value at ten cents in that option, and I have an
objective of one cent if the market
consolidates or goes higher. And I want to look to risk three
and a half cents on the trade. So looking for that
volatility to expand, then contract
after the report. – Dan Basse:
David, I like the trade. I think both of us
are thinking the same way, that as we head
into the report, there will either be a bottom right before
or right after, whether it’s
bullish or bearish, and then we get into the
frost-free season thereafter. – David Hightower:
Dan, on Market Movers, we like to educate
new folks just tuning in. This time,
we want to talk about this financial maneuver
we see in South America by grain producers, where they hold their physical
commodity against inflation. – Dan Basse:
Well, they do. As we think about
the South American farmer, currency is the
big determinant for them. In Argentina,
the peso has been devaluating very acutely
in the last several months. Right now,
if we look forward to next July and August, that peso is at
105 versus 55 today. So South American
farmers can see that. Lots of money on the table. They likely hold their
beans and sell their grain. – David Hightower:
And if they hold back, China has trouble
finding those beans. – Dan Basse: Exactly. – David Hightower:
Thanks, Dan, for your insight. We’ll keep a
close eye on the market. Thanks for joining
us on Market Movers. I’m Dave Hightower. Trade well
and trade smart.

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