CBOT GRAINS : Early Frost Implications

[DaveT]

The CBOT grains makets are now seriously considering the possibility of an earlier than normal frost (from now to mid-Sept?), which, if it occurs, could be explosive for prices, (especially corn/soybeans), which have recently priced in record yields and production.


The weather pattern over the Corn Belt has been persistantly cool and wet this summer, and long-range forecasts suggest this could largely continue thru September, raising the odds of a crop-damaging frost/freeze.

Consider the effect on Corn, for example:

Current USDA Production estimate : 10.9 + billion bushels

Analysts Projection post Frost/Freeze: 10.7 billion bushels ??? OR LESS?


With demand/usage forecast at 10.7 bn bushels, it would not take a production figure much lower than this to lower the carryout yet agian, and so further tighen an already tight Supply/Demand scenario.

The following article considers the possibility more fully, suggesting Corn could be back up at $3.00 + if the damage occurred....

Furuther comments welcome.

http://www.agriculture.com/default.sph/AgNews.class?FNC=topStoryDetail__ANewsindex_html___52376___1

 

[TheBramble]

Dave, how would YOU trade this info, given everyone else also has it?

 

[DaveT]

The Bramble -

I'm already holding March Corn 250 call options, bought at 11c average. Regardless of a frost/freeze, I project 270-280 basis March by end of the year.

Soybean options are more expensive, but long November futures with wide stops could be profitable if yields are cut.

 

[ebob]

Long corn and wheat

The Bramble -

I'm already holding March Corn 250 call options, bought at 11c average. Regardless of a frost/freeze, I project 270-280 basis March by end of the year.

Soybean options are more expensive, but long November futures with wide stops could be profitable if yields are cut.

I bought some corn call options last week as well as wheat calls. I'm currently looking at buying natural gas futures which seem to have made a temp low.

 

[fastnet]

Bramble - I am tormented by your post ;-) - I also loaded up on the long side of the Dec corn contracts (albeit thru a SB co) but now have pause for thought .. . . . I've been here before. . . . . the world and his dog can see a technically perfect double bottom and is probably now (especially since the Fri close) going long. . Although I have mch experience of chart patternsbreaking down quickly even after they have been ''confirmed'' I never learn and, to be honest, still belive that most do play out as per the text books.

However is there a way of hedging your bets. If the double bottom fails the price will most likely re-test the lower resisitance again rather than going nowhere. . . . is this what you meant ?? Maybe set up long on a confirmation of the std pattern with a resting short instruction somewhere beteen the lower resistance and the inverted neck line of the double bottom. . . . not the correct terminology but is this making any sense?

Bramble - I'd be grateful if you could indulge me??

Thanks

 

[TheBramble]

I'm already holding March Corn 250 call options, bought at 11c average. Regardless of a frost/freeze, I project 270-280 basis March by end of the year.

Thanks Dave.

And what are the March Corn 250 call options trading at right now?

Would you have bought them at this price now?

When will you get out? At a specific price level or at a certain date?

 

[TheBramble]

Fastnet - what can I say! No torment intended, just a genuine interest in how Dave was planning on trading the information he had.

I imagine the retail punters (like you and I) will go long the news (as always) so I wouldn't worry too much.

As for hedging - I guess the easiest and cheapest hedge is to close your position. If you think there's still more play in it - why hedge? If you feel it's gone as far as it will go - why stay in?

As for a 'technically perfect double bottom..." - I don't have the chart, but unless it's already formed, it ain't perfect - it could be anything. If it has already formed and your entry has been triggered - stick to your game plan.

 

[DaveT]

The Bramble -

March 250 calls closed Friday at 14 cents, almost at-the-money. (Mar 05 futures @ 249.75)

I accumulated the calls at several points as the double bottom was forming, basing my decision on weekly and monthlytrendline support (see my other Corn thread). I wanted to buy them as close to 10c or below as possible. I am using an SB, so pay a spread. Now they would be a bit further away, (obviouslyy), but still with potential.

My 1st target is based on the March futures, being the gap overhead at 280-283

280 March futures would give 30c of intrinsic value to the 250 March calls, so my target for the calls is 30-40 cents.

Here is the Mar 05 chart:

 

[fastnet]

The Bramble - thanks for that - I hope my post came across as intended i.e., tongue in cheek - although there was a slightly more serious point. Last year I read (well, cherry picked patterns from) ''Streetsmarts'' by LBR and Larry Connors. The idea of systems that set up around well known patterns breaking down was intuitively quite appealing . . . . the pattern has to be commonly known and obvious to draw in the punters (like me) . . . principle works by placing a buy/sell order where it would only be hit only if the pattern had not played out successfully. LBR's best known is 'Turtle Soup'' which plays on punters buying/selling breaks of the 20 day EMA and other commonly known trend following systems.

This is what I thought you might have been hinting at by asking what Dave T would do knowing that everyone was expecting the same thing to happen -

All will be revealed in the coming days and weeks - my guess is a move upwards after the confirmation of the double bottom followed by a test and even a dip back below (to shake out the nervous) before it races upwards . . . . lets hope so!! (although your not supposed to do that are you. . . )

Cheers -

 

[DaveT]

THE FROST/FREEZE - could this be it? (coming Sept 8-12th)??????




DJ GWS US Midday Update: Significant Weather Events Taking Shape

DJ GWS US Midday Update: Significant Weather Events Taking Shape

KANSAS CITY (GWS)--Two weather events are evolving which could have a
major impact on U.S. agricultural and economic interests in the days ahead.
The first is the possibility that Hurricane Frances could strike the U.S.
Coast late this week and secondly, the risk for some freezing temperatures
across the north-central U.S. next week.
Hurricane Frances is projected to turn toward the U.S. Atlantic Coast
Saturday and has the potential to cause significant disruptions to Labor Day
holiday activities throughout the Atlantic Coast region.
As the second half of next week approaches, the U.S. GFS computer weather
forecast model indicates that portions of the northern Plains and Midwest
could see temperatures close to freezing. The current forecast suggests that
Thursday, Sept. 9, will be the coldest day with portions of the Dakotas,
Minnesota and Wisconsin at risk for a freeze one to three weeks earlier than
normal.
Computer models can and certainly do change drastically on a day to day
basis, but this cold air intrusion has at least been suggested at times during
the past two weeks.
The weather forecast maps on Monday morning's run of the GFS model
definitely have more of a late-fall or early winter look next week than the
late-summer type conditions that normally prevail in early September.

 

[DaveT]

CORN market is certainly putting on a frost premium today -

Note the gap open - probably a breakaway gap? The double bottom held - again.

If the frost hits, there could be fireworks around Sept 9th - this is the coldest projected day - and also the date of the MONTHLY SUPPLY/DEMAND Report.

I'm holding Corn call options regardless of a freeze, but they could get interesting should this pan out....

 

[bgold]

THE FROST/FREEZE - could this be it? (coming Sept 8-12th)??????




DJ GWS US Midday Update: Significant Weather Events Taking Shape

DJ GWS US Midday Update: Significant Weather Events Taking Shape

KANSAS CITY (GWS)--Two weather events are evolving which could have a
major impact on U.S. agricultural and economic interests in the days ahead.
The first is the possibility that Hurricane Frances could strike the U.S.
Coast late this week and secondly, the risk for some freezing temperatures
across the north-central U.S. next week.
Hurricane Frances is projected to turn toward the U.S. Atlantic Coast
Saturday and has the potential to cause significant disruptions to Labor Day
holiday activities throughout the Atlantic Coast region.
As the second half of next week approaches, the U.S. GFS computer weather
forecast model indicates that portions of the northern Plains and Midwest
could see temperatures close to freezing. The current forecast suggests that
Thursday, Sept. 9, will be the coldest day with portions of the Dakotas,
Minnesota and Wisconsin at risk for a freeze one to three weeks earlier than
normal.
Computer models can and certainly do change drastically on a day to day
basis, but this cold air intrusion has at least been suggested at times during
the past two weeks.
The weather forecast maps on Monday morning's run of the GFS model
definitely have more of a late-fall or early winter look next week than the
late-summer type conditions that normally prevail in early September.

Indeed, grains are once again great trading markets. Bean complex are across the board up but 5+% with corn folllowing a "cool" 4%. My corn short was stopped out at 237 for 2pts gain.
Will have to reassess situation.
Considering the uncertainty about the immediate weather outlook, I expect continued high volatility. While beans, meal and oil are making new highs from the recent lows, this cannot be said for wheat and corn.
I hear from the floor that todays' rally is apparently very much triggered by fund buying. Floor traders appear to sceptical. Should weather news be less bullish (eg no frost), there could be a great set-up for shorts. My charts do not yet universally point upwards! For now I am on the sidelines.

 

[DaveT]

Also note BEAN OIL is up something like 130 points or so.....(by my IG quote)

Damage at this stage could lower the oil content of the beans - This could be the market leader in the grains this fall...