Grain Traders Await the USDA Prospective Plantings Report
Fundamentals
Now that spring has arrived, grain traders are turning their attention to how many acres U.S. producers will dedicate to Corn and Soybean production. Already several private forecasters have given their acreage estimates ahead of the widely anticipated USDA Prospective Plantings report due out on March 31st. Corn acreage estimates have varied widely, with estimates running between 87 and 91.5 million acres expected to be used for Corn production. For Soybeans, traders are looking for around 79 million acres being planted, although some analysts are looking for nearly 81 million acres! Weather conditions will be critical in determining how many acres actually do get planted this year, as a warm and dry spring will benefit Corn plantings, as producers are able to get into the fields earlier than anticipated -- but a wet and cold spring will favor Soybeans, which have a much shorter growing season than Corn. Although acreage predictions are only early estimates so far, traders are already anticipating an ample crop this upcoming season, as both new-crop December 2010 Corn and November 2010 Soybeans are trading well off their highs. This is true especially for Corn, as traders still remember how difficult the weather was for last year's Corn crop -- especially during the harvest -- yet U.S. producers still managed to produce over 13 billion bushels of Corn! In the past, the Prospective Planting report has triggered some volatile trading sessions the day the report was released, with prices moving up or down the maximum daily price limit on several occasions. Traders should be prepared for the potential of increased volatility in the next several trading sessions leading up to the USDA estimate.
Trading Ideas
December Corn futures have been on the defensive lately, trading near 6-week lows as of this writing. Although the trend is favoring lower Corn prices, any acreage estimate surprises in the USDA report could cause a big move in Corn prices. Some traders anticipating an increase in Corn volatility may want to explore the purchase of a strangle in December Corn futures. An example of this trade would be buying the December Corn 440 calls and buying the December Corn 340 puts. With December Corn trading at 386.00 as of this writing, this strangle could be purchased for 41 cents, or $2,050 not including commissions. The premium paid is the maximum risk on the trade, with the trade being profitable should December Corn be trading above 481.00 or below 299.00 at expiration in November. Given the large amount of premium required for the trade, some traders may wish to exit the trade early should the value of the strangle fall by 50% from the entry price.
Technicals
Looking at the daily chart for December Corn, we notice prices have been trading at the lower end of a 25-cent trading range since the middle of January. Prices are now well below both the 20 and 100-day moving averages and momentum has turned weak, with the 14-day RSI reading 38.15. Should support fail to hold at the recent lows of 382.75, the next major support point is not found until the 350.00 area. Resistance is seen at the recent highs made on 3/3/10 at 406.25.
Mike Zarembski, Senior Commodity Analyst
