the hightower report - cme groupin the report world ending stocks for 2013/14 came in much higher...

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May 13, 2014

Th e soybean market is in a major transition as it adjusts to a new set of fundamentals for the 2014/15 season. Th e US stocks/usage ratio is expected to shift from the record low 3.8% this year to a more bearish 9.6% for the upcoming season. In addition, South American soybeans and products from the 2014 harvest are beginning to pull down world values for soybeans, meal and oil. South America’s 2014 soybean crop is expected to be around 153 million tonnes, up from 143.25 million last year.

In its May Supply/Demand report, the USDA pegged old crop ending stocks at 130 million bushels, just 3.8% of usage. But with normal weather the USDA believes ending stocks for the 2014/15 season will reach 330 million bushels, which would result in a stocks/usage ratio of 9.6%. World ending stocks are expected to shift from 66.98 million tonnes at the end of the 2013/14 season to a record high 82.23 million tonnes for 2014/15, a whopping 11.89 million tonnes above the previous record high.

Th e most recent Commitments of Traders report (as of May 6th) showed non-commercial and non-reportable traders combined held a net long position of 83,081 contracts, down 36,688 contracts in just one week. Th is long liquidation selling is seen as a short-term bearish force. Trend-following funds held a net long position of 89,027 contracts, down 35,336 on the week.

Th e US plantings pace is picking up steam. At this point North Dakota and Minnesota appear to be most at risk of not getting their corn planted in time and being forced to switch over to soybeans. Th e price trend is shift ing downward. Traders might consider positioning themselves for a signifi cant move down in November

Campaign Trade #5Buy Corn/Sell Soybeans

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29.31%

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Soybeans, using $11.68 ¾ and $11.49 ¾ as initial targets. Resistance is at $12.29 ¾ and $12.34 ¼.

Th e corn market continues to see better-than-expected demand news, but the May USDA Supply/Demand report showed some negative global supply news as well, just not as bearish as soybeans. Th e report pegged US ending stocks for the 2013/14 season at just 1.146 billion bushels, down from 1.887 billion estimated in November. Th is was mostly due to stronger than expected demand. A year ago the USDA was forecasting that number at 2.004 billion bushels (see chart).

For the new crop year, the USDA sees US ending stocks coming at 1.726 billion bushels with a stock/usage ratio of 12.9%, provided yield is able to reach 165.3 bushels/acre. Last year’s yield was 158.8 bushels/acre. If we plug in a somewhat lower but still historically high yield of 162 bushels/acre, ending stocks would come in at just 1.443 billion bushels with a stocks/usage of 10.8%.

In the report world ending stocks for 2013/14 came in much higher than expected at 168.42 million tonnes, up from the April estimate of 158 million. Th e estimate for the 2014/15 season came in at 181.73 million tonnes, with a stocks/usage ratio of 18.8%. Th e surge in the world carryout from year over year was mainly a result of the increase in US supply, but “Major Exporters” and Ukraine saw a year/year declines in their carryout levels. Risk seems to be entirely dependent on the US supply. We expect market volatility to remain high this spring and summer as US variations in weather and acreage and yield estimates should keep the crop outlook volatile.

Th e Commitments of Traders reports as of May 6th showed non-commercial and non-reportable traders combined held a net long position of 183,216 contracts in corn, up 2,393 contracts for the

THE HIGHTOWER REPORT SPECIAL REPORT/CAMPAIGN TRADEMay 13, 2014

Futures Analysis & Forcasting

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US Corn 2013/14 Crop Year Ending Stocks Estimates from USDA Supply&Demand Reports

Source: USDA





week. Trend-following funds (non-commercials net of index traders) held a net long position of 207,035 contracts, up 6,492 contracts on the week but only about 55% of the record net long of 372,756 contracts. Resistance in December Corn comes in at $5.01 ¾ with $4.86 and possibly $4.76 as key support. We would expect corn to fi nd increasing demand on price breaks, as it is already cheap relative to most comparable feeds. A break would also spark even better margins for ethanol producers.

Suggested Trading Strategy

BUY 2 December corn futures and SELL 1 November soybean futures at -$2.31 to the buy corn side. (2 x corn price – soybean price = -$2.31.) Use an objective of -$1.29 Corn, and risk the trade to -$2.56 Corn.

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2 x Dec Corn - 1 x Nov Soybean Spread 2014 vs 10 Year Average

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Th e information in this report may be considered dated upon its release and should not be considered interpersonal advice. Th is report is merely an opinion on the market and is a refl ection of conditions as of its publication. Market conditions change! Traders should not consider entering positions without their own independent analysis of the market’s current situation, nor without further consideration of any changes to the information contained herein that may have occurred since this report was written. Th e authors are not responsible for any verbal or written claims and opinions that might be provided in conjunction with this report. Th e trad-ing suggestions contained herein have been provided merely as a general guide and only for the purpose of quantifying the authors’ opinions.

Th is report includes information from sources believed to be reliable but no independent verifi cation has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. Th is report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. Th e risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their fi nancial condition. Any reproduction or retransmission of this report without the express written consent of Th e Hightower Report is strictly prohibited.

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