Grain Update: Mother Nature Shines On Planting Season

Monday’s crop progress report put beans planted at 71% versus the 10 year average of 74%. Even with all of the rain, we are still at a fast pace, which has traders talking of 1-2 million more acres to be planted, compared to the March 31st planted acreage report.

Near perfect weather called for in the 10 day forecast of warmer and drier should have bean planters finishing up, giving us a potential break down to the $9.00 area, followed by short covering by trend following funds that entered this week short 90,000 contracts.

Noncommercial funds entered short 113,000 contracts. A short covering rally of just 35% of that position could be a dollar on the upside of beans, while this may also represent a base of a weather premium to build on. We anxiously awaited the wheat crop condition report on Monday to see if damaging rains in the Western wheat belt had damaged the crop. The condition came in at 44% good to excellent condition, down just one percent from the week prior.

It is hard to imagine having rain totals of biblical proportions that recently occurred in Texas, Oklahoma, Kansas, and parts of Nebraska, and not have a change in the condition of more than one percent in the major producing winter wheat states, so we look for a possible change in next Monday’s report to make up the difference. It could be as much as 3% points lower if the damage has been done. This past weekend came in wet, but then turns very dry in the wheat belt - just what’s needed to develop a higher rated crop. Any correction in the market should be bought, in my opinion, and then look for a short covering rally by non-commercial funds short 67,000 and trend following funds short 84,000. The reason for a rally, and not a break on a better crop rating, comes, as it would move the US to a primary port of origin for high quality milling wheat if the good growing weather had improved the crop conditions

Here are two trades to possibly consider. I propose buying the September soybean 9.80 call and selling two September soybean 10.80 calls for six cents, or in cash value, $300.00. Second proposal is to look to buy the December 6.00 wheat call and sell two December wheat 7.00 calls for six cents, or in cash value, $300.00. I look for continued short covering and a possible weather premium to be built into the market throughout the growing season for soybeans, and increased short covering potentially in wheat. The risk on the trades is the price paid for the spread plus all commissions and fees.