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Play Turner’s Take Ag Marketing Podcast Episode 278
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This is the kind of volatility you can get when crop stocks are tight and new crop stocks are projected adequate-to-tight. The summer weather volatility can be off the charts. Expect more of the same over the next few weeks. In our latest podcast we go over how to trade, hedge and market in these periods. Make sure you take a listen to this week’s Turner’s Take Podcast!
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We are in a full blown weather market. Old crop stocks are tight. New crop production needs to be at trend line yields or to have adequate stocks in corn and moderately tight stocks in soybeans. Changes in the weather lead to estimated changes in final yield, and that is why this market is so volatile. The difference between 174 and 179 yield in corn is about 500 million bushels. That could mean 1.4 billion carryout or 900 million! Harvest prices at 1.5 billion or higher argue for corn to be below $5 across the board. Ending stocks below 1 billion suggest corn should be $6, $7 or even $8! I drastic change in the weather could mean a dollar in corn or two in soybeans.
I’ve seen this type of price action before. It reminds me of 2012-2013 and 2007-2008. The markets are trading at high prices, stocks are tight, and there are less resting orders in the market than usual due to the volatility. This can create vacuums in the depth of market when support and resistance levels are broker. The price action on Thursday and today are good examples.
Sunday night should be volatile. Will we get rain this weekend? What will happen with the tropical storm coming through New Orleans? How will that change the weather forecasts for the next two weeks?
Another thing to keep an eye on is China. New hit today that China bought 8 US soybean cargos, the most they have bought from us in the past four months. Is South America out of soybeans already?
This is setting up for a wild summer. Good luck out there and stay calm. I said this on the podcast but I will put it down in writing now:
- If you trade futures then make sure you have an options for protection. When buying soybeans make sure you have a put. When selling corn make sure you have a protective call. If you don’t want to have a protective option then I would suggest only using 25% of your margin and keep the other 75% unused to deal with the extreme volatility.
- If you don’t want to trade futures then I would use call spread and put spreads. When buying soybeans I would buy call spreads and sell put spreads. If you want to be short I would buy put spreads and sell call spreads. That goes for spec traders but is also relevant for hedgers.
We all need to know our risk in these types of markets. Everyone looks at the big moves and thing about the potential gains, but it is the risk management that keeps you in the game. In this type of market the options are the price of admission. If you don’t manage risk you could be out of the game sooner than you thought possible.
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Dec 2021 Corn
Nov 2021 Soybeans
Dec 2021 Soybean Oil
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About Craig Turner
Craig Turner is a Senior Broker at Daniels Trading, author of Turner’s Take newsletter, and a Contributing Editor for Grain Analyst. Craig is often quoted in the Wall Street Journal, Reuters, Dow Jones Newswire, Corn & Soybean Digest, and also makes appearances on SiriusXM – Rural Radio Channel 80 providing commentary for the Grain and Livestock markets. Craig has also been featured in FutureSource’s Fast Break series, Futures Magazine Online, and INO.com. Mr. Turner has a Bachelors from the Rensselaer Polytechnic Institute (RPI) where he graduated with honors and has worked at the NYSE and Goldman Sachs. While at Goldman, Craig earned his MBA in the NYU Stern executive program. Learn more about Craig Turner.