by Gavin M.
It has been awhile since any of us has written anything on this site. I don't think the markets really have changed since late February. I'm going to do a full disclosure here. I have been a trader for nearly 13 years now. I trade futures, forex and stocks/options. Since this post is about grains, I've been trading grains since 2006 and you'll normally only here me talk about them in the spring/summer months. If I actually sucked at trading grains, I would've stopped at Year 2 of trading them.
We had the USDA Crop Production report today. It was a mixed bag for everyone. The corn people got what they wanted, the soybeans people probably got disappointed judging from the price action and then the wheat people were just 'blah' about it. I went short soybeans approximately Monday morning.
There are no traders on the fence when it comes to grains here. The main reason I shorted beans is because it has gone too far too fast with no basis behind it. Week after week after week, we receive reports from either the surveys or the USDA progress data that we continue to have record high yield. Unless someone out there is just making numbers up, that is compelling enough to make one think, "Hang on, why would I be buying soybeans here north of $11/bu?"
This is what makes the market work - two teams - the optimists and the pessimists. The optimists will never want to accept the other group's trading thesis and vice versa. So I was not shocked that corn got a bump up rather than a sell off despite the report of record high yield. Why? You only have to look at the price of corn ahead of the report. It was way beaten down - the analysts have a great reasoning for this - "It was already priced in." So why would any decent trader out there short corn when its price chart was already way down?
Let's turn our attention to soybeans. It shot up way too fast: probably due to short covering or whatever reason there is that the traders bought it up. Soybeans was always the wildcard because despite the record yield, traders have assumed demand continued. What cannot be ignored is the hard data week after week that record yields will be here. Of course we'll know for sure by September when harvest season is upon us. Fundamentals can take sometime to trickle into the markets and that is fine.
So, the reasoning was simple enough - find the grain product that went up too high and would be the most vulnerable for any move. It was soybeans. Even at the time of this post, soybeans have rallied a good 18 cents or so from the USDA lows. It will be known in the coming days/weeks if the fundamentals will hit this one hard or if the market players will remain in denial until real, hard data will come slapping them in the face like the hand of a woman scorned.
USDA prices Soybeans at $10.35 / bushel. At least that can be a reference bottom if we ever reach it. I would remain short any rallies set by soybeans.
Traders from Equity Sense will be writing on this blog on positions and other market-related things.