<0RN - strategic long tradeAs discussed in another idea on TradingView () I expect the corn price to rise. To participate in this rise, one might use this leveraged ETF. The buy order could be placed above the former local high as seen on the chart.
Agriculture
MULTIBAGGER Series - Stock 4Hello everyone!
I am back with 3rd company of the multibagger series.
The company is Nirman Agri Genetics Ltd. NAGL is an agricultural input company that produces, processes, and markets premium hybrid seeds, organic fertilizers, and bio-organic seeds for a variety of crops, including corn, sunflower, cotton, rice, sorghum, and grain. Majorly they are processing corn. It has recently started producing micronutrients and bioproducts. In addition, it grows non-hybrid seeds. Company is working towards creating seeds with greater yield potential, drought resistance, pest and disease tolerance, etc. As drought is a great issue in Maharashtra where the company operates, these seeds are playing an important role during droughts because of their resistance. It is also working on research and development projects about better breeding techniques and biotechnology instruments, which allows it to create hybrid seeds, micronutrients, and bioproducts.
In FY24, company generated revenue from Sale of Products which was ~121% higher than FY23. In has shown a triple digit growth this June quarter. Company has an advance Order Book for the Rabi season for Rs. 120 Crores. Currently the revenue stands at more than 100 crores and profit at 14 crores. The market cap of the company is 242 crore making it a small cap company.
Investing in such companies will make our portfolio diverse and as they are smallcap company, chance of giving multibagger returns are more from such companies.
Investing in such companies bring a high risk factor so please do your own analysis before investing.
Hope you learned something new from this post.
Do like, share and follow me. Thank you!
What Hidden Forces Are Reshaping the Soybean Market’s Future?The soybean market stands at a crossroads, where familiar patterns of supply and demand are being challenged by a web of global forces. U.S. crops, though abundant, face domestic difficulties as adverse weather threatens yield projections. South America, poised to increase production, is battling its climate concerns, leaving traders and analysts questioning what the true state of global supply will be. Despite the current pessimistic outlook, is there more to this story than meets the eye?
On the demand side, the rising global appetite for vegetable oils, fueled by population growth and the biofuel industry, adds another layer of complexity. Yet, regulatory changes like the EU’s deforestation rules and China’s ongoing economic struggles continue to shape the trade landscape. How will these evolving dynamics impact global soybean trade flows, and what are the risks and opportunities hidden within?
As technological advancements in biotechnology and precision agriculture push the boundaries of efficiency and productivity, the soybean market finds itself on the cusp of transformation. Investors and traders must decipher this intricate puzzle, where geopolitical shifts, weather risks, and innovation collide. Will those who grasp the nuances of these forces be the ones to seize the emerging opportunities?
Is Your Summer BBQ in Jeopardy?The seemingly innocuous drought in Brazil could have far-reaching consequences for global food supply chains. As the world's largest soybean exporter, Brazil's weather patterns significantly influence the availability and affordability of various food products.
The delayed planting of soybean crops due to dry conditions in Brazil is raising concerns about potential shortages and price hikes. This could have a ripple effect on the production of meat, poultry, and other food items that rely on soybeans as a key ingredient.
Beyond the immediate impact on soybean prices, the drought could also have broader implications:
Increased Food Costs: The shortage of soybeans could lead to higher prices for animal feed, ultimately affecting the cost of meat and poultry.
Disruptions in Food Processing: Industries that rely heavily on soybeans, such as food processing and biofuel production, may face disruptions due to limited supply.
Global Economic Impacts: The drought could have economic consequences beyond the food sector, affecting trade, transportation, and employment in related industries.
The question now is: How will the global food system adapt to this challenge?
As the world grapples with the implications of Brazil's drought, it is crucial to explore sustainable solutions and strategies to mitigate the potential impacts on food security and economic stability.
Can Corn Conquer Climate Change?The global food system is under siege from the escalating climate crisis, and corn, a pivotal commodity, is facing a particularly formidable challenge. Rising temperatures, erratic rainfall patterns, and the increased prevalence of pests and diseases are all conspiring to undermine corn production. This article delves into the intricate relationship between corn and climate change, examining the potential consequences for food security, economic stability, and social well-being.
Beyond the immediate threats posed by climate change, the impacts on corn production can have far-reaching consequences. Reduced yields can lead to price volatility, making it difficult for low-income households to afford basic food staples. This can contribute to food insecurity and malnutrition, particularly in vulnerable populations. Moreover, corn production is a major source of income for many farmers, especially in developing countries. Climate change-induced crop failures can have devastating consequences for rural livelihoods and economic stability.
However, the challenges are not insurmountable. By adopting sustainable agricultural practices, investing in climate-resilient crop varieties, and fostering global cooperation, we can safeguard the future of corn and ensure a more sustainable and equitable food system for generations to come. Climate-smart agriculture, which includes practices like crop rotation, cover cropping, and precision agriculture, can improve soil health, reduce water use, and enhance resilience to climate change. Additionally, breeding for resilience can develop corn varieties that are more tolerant to heat, drought, and pests.
Furthermore, promoting crop diversification can help reduce the risk of crop failures and ensure food security even in the face of climate-related challenges. Governments can also play a crucial role in supporting farmers by providing financial assistance, access to climate information, and investments in agricultural research and development.
In conclusion, the future of corn is inextricably linked to our ability to adapt to a changing climate. By embracing sustainable practices, investing in innovation, and fostering global cooperation, we can ensure that corn continues to play a vital role in feeding the world. It's a call to action, a challenge to rethink our approach to agriculture, and a reminder that the future of food is in our hands.
Is This the Beginning of a Global Food Crisis?Wheat, a cornerstone of global food security, is facing unprecedented challenges.
Rising temperatures, extreme weather events, and geopolitical tensions are converging to create a perfect storm for wheat production. The result? A significant wheat rally that could have far-reaching implications.
Climate Change's Impact:
As the planet warms, wheat-growing regions are becoming increasingly vulnerable. Extreme heat and unpredictable weather patterns are disrupting harvests and reducing yields. This is especially pronounced in Europe, where persistent rainfall and heatwaves have devastated crops.
Global Supply Chain Disruptions:
The war in Ukraine, coupled with export restrictions and transportation challenges, has further strained global wheat supplies. This has led to a surge in demand for wheat from other regions, exacerbating the price increase.
The Looming Food Security Threat:
The rising cost of wheat, a key ingredient in many staple foods, poses a significant threat to food security, particularly in developing countries. As prices continue to climb, access to affordable food becomes increasingly difficult for millions.
The Road Ahead:
The future of wheat production and global food security is uncertain. The world must adapt to the changing climate, invest in sustainable agricultural practices, and develop strategies to mitigate the risks posed by geopolitical tensions. The stakes are high, and the time for action is now.
Can We Unravel the Mysteries of Wheat Market Stability?In an era of interconnectedness and unprecedented challenges, the global wheat market stands as a critical linchpin of food security. Its intricate interplay of supply, demand, and geopolitical factors has profound implications for the world's ability to feed itself.
The wheat market, a cornerstone of global agriculture, is subject to numerous forces that can disrupt its equilibrium. Climate change, with its increasing frequency of extreme weather events, poses a significant threat to wheat production. Droughts, floods, and heatwaves can devastate crops, leading to shortages and price volatility. Additionally, the geopolitical landscape is fraught with tensions that can impact wheat trade. Conflicts, sanctions, and trade disputes can disrupt supply chains, limiting access to essential food commodities.
Moreover, the growing global population, coupled with changing dietary habits, is placing increasing pressure on wheat production. As incomes rise, consumers are demanding more diverse and protein-rich diets, which can drive up demand for wheat-based products. This increased demand, combined with the challenges posed by climate change and geopolitical instability, creates a perfect storm of uncertainty for the wheat market.
The future of wheat, and by extension, the global food system, hangs in the balance. Can we unravel the enigma of wheat market stability, or will the challenges posed by this vital commodity prove insurmountable? The answer to this question will determine the extent to which we can ensure food security for generations to come.
Sugar heading for multi-year lowsIs easy to see that the $20 zone is key for sugar, the price broke below it in April and it has not been able to come back above
The price has dropped more than 36% since it peaked in November of 2023 and this week just made a new 52-week low
The next key level is at $17.50, the daily chart already gave a sell or short signal
A follow through below this level could lead to a good gain in the short side
Also, could lower sugar prices lead to higher oil prices?
Remember that oil prices tends to be inversely correlated with the price of sugar, primarily due to its impact on ethanol production and the competing use of sugarcane for fuel versus food.
Just look for what is outperforming the S&P 500The market started to rotate in early July to more conservative sectors and AMEX:DBA is showing that agricultural commodities have been outperforming stocks.
The ratio SP:SPX / AMEX:DBA made a lower high starting August and then just days later broke a key support level.
Then the AMEX:DBA broke above a downward trendline.
Is this the start of new trend? At least it is in the short term.
The are some stocks in the food industry that are looking good like NYSE:TSN and $INGR.
Even NYSE:PPT is doing all time highs after a 20-year base!
The Orange Juice Crisis: A Climate-Induced Market ShiftOrange juice prices have hit record highs due to a confluence of climate-related challenges, including extreme weather events, rising temperatures, and altered rainfall patterns. These factors have decimated citrus crops, particularly in key production areas like Florida, leading to significant supply shortages and driving up prices. This crisis underscores the fragility of our food supply and highlights the urgent need for innovative solutions and international cooperation.
The orange juice industry faces a severe crisis driven by climate change, leading to soaring prices and dwindling supplies. Extreme weather events, rising temperatures, and altered rainfall patterns have devastated citrus crops, particularly in Florida, the heart of U.S. orange production. This has led to a bidding war for orange juice concentrate, exacerbated by inflationary pressures on fertilizers, pesticides, and labor costs.
Globally, major producers like Brazil, Mexico, and Spain also grapple with these climate-induced challenges, resulting in reduced yields and increased vulnerability. The economic toll extends beyond agriculture, affecting jobs and local economies.
Addressing climate change is crucial for the industry's future. Investing in research to combat diseases like citrus greening, improving water management practices, and adopting sustainable farming methods are essential steps. Diversifying crops and exploring alternative citrus products could also offer relief.
This crisis highlights the fragility of our food supply and the urgent need for global cooperation to ensure the long-term viability of the orange juice market. As climate change continues to impact agricultural production, innovative and sustainable solutions are imperative to stabilize prices and secure the future of this beloved beverage.
CORN Buy IdeaFOREXCOM:CORN has shown big upside move after a long term bearish trend. Currently, It's retracing towards an ascending trendline retest where we can look for buying setups
CORN Buy IdeaFOREXCOM:CORN has completed it's ABCD harmonic pattern and currently trading in potential reversal zone. We might see possible bullish move here and can try to look for buy side opportunities
Momentum Trading In Agricultural CommoditiesMomentum trading, a strategy as old as the markets themselves, has found fertile ground in the sprawling fields of agricultural commodities.
As the seasons change, so do the prices of wheat, corn, soybeans, and other staples, tracing patterns as predictable as the migration of birds or the spring blossom.
This paper delves into these seasonal trends, uncovering how they can serve as reliable signals for astute investors looking to harness the power of momentum trading.
SEASONAL TRENDS IN AGRICULTURAL COMMODITIES
Mint Finance has previously highlighted some of these seasonal trends in Corn and Soybean in detail previously
In short, seasonal cycles in crop performance are linked to crop harvest cycles. Pre-harvest, inventory drawdowns tend to drive price higher while post-harvest, a glut of inventory tends to drive prices lower.
Corn
Corn prices start declining in June following the harvest in China (second largest corn producer) and Brazil (third largest corn producer). Prices reach their lowest in October, coinciding with the harvest in the US.
Over the past five years, corn prices have increased in the first half of the year before declining sharply in late June. In 2024, indexed price performance shows prices sharply lagging the seasonal trend as we approach the date on which prices generally declined the last five years.
Wheat
Wheat seasonality is less pronounced than other agri-commodities due to its relatively global distribution. Still, wheat prices generally rise during the first part of the year before declining in late June as all the major producers - China, Indian, EU, Russia, and US harvest crops during this period.
This year, wheat prices started the year off on a bearish note. After bottoming in early-March, prices started to rise sharply peaking in late-May. Mint Finance covered some of the factors behind this rally in a previous paper (Extreme Weather Sends Wheat Prices Surging). Prices have started to normalize in June, a few weeks before the seasonal price decline generally begins.
Soybean
Soybean prices generally rise during the first part of the year. In late-June, as the Brazil harvest reaches its peak, prices decline sharply. Prices remain subdued until September when the US crop is harvested.
This year, prices have sharply lagged their seasonal performance. Despite the rally in early-May driven by flooding in Brazil, prices remain lower than their level at the start of 2024. Moreover, the rally following the flood-driven rally has retraced a few weeks before the seasonal price decline generally takes place.
MOMENTUM TRADING IN AGRICULUTAL COMMODITIES
Investors can execute momentum trading strategies by leveraging these seasonal trends. In this context, momentum trading strategy refers to a relatively simple trading strategy where investors either buy or sell a futures contract at the start of the month based on the seasonal price performance during that month.
For instance, if seasonal trends show that June generally results in a price decline, the strategy would consist of going short on the commodity at the start of June and closing the position at the end of the month.
Although, at face value, this strategy may seem overly simplistic, its return and accuracy are surprisingly high.
The simulations are based on a position in the front-month futures, consisting of one contract of the agricultural commodity, opened at the beginning of the month and closed at the end.
Corn
For Corn, running the momentum trading strategy would have yielded average annual returns of USD 8,500 per year over the past five years (2019-2023). Crucially, performance of this strategy in 2024 is sharply lower as it would yield total PnL of just USD 63 this year.
Wheat
Similarly, for wheat, this strategy returned an average PnL of 4,650 per year during 2019-2023. So far in 2024, this strategy would have yielded USD 6,600 in wheat futures in 2024.
Soybean
In Soybean futures, momentum trading would have been the most successful over the past five years. This strategy would have yielded an average of USD 13,600 per year between 2019 and 2023. However, in 2024, this strategy would not have been successful as it would have resulted in a loss of USD 8,700 so far.
SUMMARY AND 2024 PERFORMANCE
It is clear that although this strategy is successful on a long timeframe, it is not necessarily profitable each month. For instance, the Soybean momentum trading strategy would have resulted in a loss in 2024 while Corn momentum trading strategy would have resulted in flat returns.
The reason behind this divergence from seasonal trend is clear when comparing the seasonal price performance charts at the start of the paper. Fundamental factors can result in broad-based trends throughout the year which can skew returns. For instance, as Soybean prices have been declining for most of 2024, a long position would have resulted in a loss regardless of seasonal trends.
As such, it is crucial to supplement this strategy using fundamental inputs on what the long-term price trend for the crop is. For a crop which is in a down-cycle, a long position would not make sense and vice versa.
In the near-term, all three crop’s prices tend to decline during July based on seasonal trends. However, the outlook for corn is most bearish. The latest WASDE report , suggested that USDA expects global corn production in marketing year 2024-2025 to reach 1,220.5 million metric tons compared to a forecast of 1,219.93 million MT last month. The increase in production comes from forecast for higher output from Ukraine and Zambia more than offsetting the decline in Russia.
Moreover, USDA forecasts a season average price of USD 4.4 per bushel which is lower than the current futures price of USD 4.57. Asset managers are also shifting their view on corn prices bearish once again as COT report showed asset managers increasing net short positioning last week.
Both fundamental and seasonal factors support a price decline in corn over the next month. However, seasonal trends are not exact. Particularly in 2024, seasonal trends have underperformed their usual returns from the last five years.
Investors can opt to use options instead of futures to express the same view of weakening prices. Options provide fixed downside risk and require only an upfront premium, avoiding the need to manage margins as futures prices fluctuate.
A long put position in CME corn options expiring on August 23 (ZCU24) can be used to gain downside exposure.
CME Corn puts are relatively cheaper compared to calls. Moreover, options IV (measured by the CVOL index) is lower compared to the peaks seen during the same time last year. An options position would benefit from both falling prices and rising IV.
Source: CVOL
A long put options position on corn futures presents fixed downside of USD 464 (USc 9.29 x 5000/100) and unlimited upside. A strike price of USc 430/bushel represents delta of -0.29. This position would break-even at USc 420/bushel.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
RALLIES : Sector Agriculture CONSOLIDATION ALMOST OVER FRESH BREAKOUT SOON .
POSTIVE -🔥
1. Company Almost DEBT free
2. PromoterS - 𝙄𝙉𝘾𝙍𝙀𝘼𝙎𝙀 𝙃𝙊𝙇𝘿𝙄𝙉𝙂
3. FIIs - 𝙄𝙉𝘾𝙍𝙀𝘼𝙎𝙀 𝙃𝙊𝙇𝘿𝙄𝙉𝙂
#BOOK_VALUE - 94.1 ₹
EPS - 7.60
STOCK PE - 37.1
ROE - 8.30%
Disclaimer : educational purpose only.
DYOR
Extreme Weather Sends Wheat Prices SurgingWheat plays a critical role in global agriculture and trade. Extreme weather has turned wheat prices bullish, rising more than 22% in a month after having languished for more than two years.
After reaching their lowest level in more than three years in March 2024, prices have rebounded strongly. Wheat rally is driven by extreme weather events in multiple places compounded by supply-demand imbalances.
Wheat rally is far from over. The May 2024 WASDE report painted a surprisingly positive outlook for wheat, suggesting an increase in US production. Outlook may be too optimistic, making revisions likely. Prices face risk to the upside once weather impact is comprehensively reassessed.
This paper posits a long position in wheat options benefiting not only from price appreciation and from expanding volatility.
WASDE PAINTS A POSITIVE WHEAT OUTLOOK
Recent WASDE report provides initial forecasts for 2024/25 marketing year (MY24/25) and updates projections for the current MY. These updates are crucial for estimating ending stocks which will be carried over to the next year.
Global production is expected to grow 1.3% in the upcoming MY to 798.19MT. Projections are even more optimistic for the US crop. USDA expects US wheat production in MY24/25 to be 3% higher YoY and total supplies to be almost 6% higher YoY.
Source: USDA
WHEAT CROPS ARE GETTING IMPACTED BY SEVERE WEATHER
Russia is the largest wheat exporter commanding 24% of total global exports. Russia has been hit by severe frost and cold.
Three of Russia’s key grain producing regions have declared a state of emergency, stating that May frost has caused severe damage to crops, reports Reuters . This year’s crop output will be lower. Frost linked damage follows record hot April which also harmed wheat crops.
The USDA has reduced its outlook for Russian wheat production by 3.5MT which might be an underestimate given widespread damage. WASDE report was released merely two days after Russia declared emergency, leaving USDA with little to no time to assess the impact.
STOCKS-TO-USE NEAR ALL-TIME-LOW
Data Source: PSD
Stocks to Use levels at major wheat exporters is currently at a 16-year low at 13.8%. It is expected to drop further to a record low of 12.4% in the upcoming MY24/25.
Low stocks-to-use ratio suggests that supplies are tight. Ending stocks are low relative to total consumption. Low stock-to-use ratios make prices extremely sensitive to minor shocks in physical markets.
MANAGED MONEY HAVE REVERSED COURSE ON WHEAT BEARISHNESS
Sentiment is shifting rapidly. Asset managers have been net short on wheat futures since 2022. This trend has reversed sharply over the last month with asset managers cutting short positioning by 70%. Net short positioning is at its lowest level since October 2022. Last week, asset managers continued to reduce their short positioning (down 35% over the past month) while also increasing their long positioning.
Source: CME QuikStrike
Bullish sentiment prevails with a put/call ratio of 0.57 in wheat options. Calls dominate both near-term and later contracts. Recent options market trading has been bullish for later expires.
Despite strong rally, implied volatility is lower than the levels seen last year and even during late 2022 signalling potential IV expansion.
Source: CME CVOL
HYPOTHETICAL TRADE SETUP
Wheat faces multifaceted upside risks stemming from weather-driven uncertainty and damage which may not have been factored into USDA’s supply outlook. Wheat supply also faces the risk of disruption from record low stocks-to-use ratio.
Wheat prices are up 22% over the last one month. A long futures position may be impacted negatively by a near-term correction. Instead, a long call position offers limited downside and substantial upside from expanding volatility and rising prices.
TradingView recently launched options suite brings traders a raft of options analytical tools. Wheat options chain can be visualised clearly.
Options IV across a range of expiries to identify key strike levels can also be visualised.
Strategy simulator enables evaluation of various strategies intuitively by visualizing the payoff based on not only price but also expansion or contraction of IV or time-decay.
The above hypothetical trade setup shows the payoff for a simple long call position in OZWU24 contract expiring on 23/August at a strike price of 750.
The premium for this option as of 17/May stood at 33 cents/bushel which results in a premium of USD 1,650 for a full options contract consisting of 5,000 bushels.
The above position breaks even at USc 783. If IV expands by 2%, the position would break even at USc 778.
Assuming constant IV, the:
• trade delivers profit of 1,850, if prices rise to 820.
• option expires worthless leading to a loss of 1,650 if prices remain below strike.
The options simulator features simple and intuitive interface enabling visualization of common options strategies. The tool also enables users to easily create and customize trading strategies.
Alternative to a long call, the bull call spread provides a pre-determined maximum profit and loss. The long call benefits from price rise and volatility expansion.
While short call offsets long call premium reducing potential losses. However, the profit potential is limited because any appreciation beyond the short call strike is negated by equivalent losses from the short position.
Bull Call Spread consists of a long call at a strike of USc 680 and a short call at a higher strike of USc 700. The width of the spread is set at 2 (700-680), a wider range can offer higher upside and reward/risk ratio, but it is only viable when the expected move is large.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Wheat Holding at the PCZ of a Bullish Bat Aligning with SupportWheat 2 years after topping out at the PCZ of a Bearish Shark that initiated a downtrend in 2022, has now come back to the top side of the range wheat traded in between the years of 2016 and 2020 before ultimately confirming the bottom at the PCZ of a Bullish Deep Gartley in 2019 and breaking free to the upside of the trading range in late 2020.
Now that wheat has found its way back down here at this previous resistance zone, we can see that it has formed a Bullish Bat structure on the way down which aligns with the old resistance and that it is currently attempting to be supported by the 200-period moving average on the 2-week timeframe. We can likely assume that as the Baltic Dry Index continues higher, wheat will regain it's 2021 highs along with many other agricultural goods and that this will have an inflationary effect overall.
In the related ideas section I will leave a setup for BDRY which is the ETF that tracks the Baltic Dry Index and I will also leave the DBA which is an ETF that holds the futures contracts for various different agricultural goods such as corn, wheat, sugar, and more related items. I will also leave setups for two Dry Bulk and Containership Charterers.
Lastly I will provide my harmonic Inflation Rate projections.
Corn Prices To Fire Up on Rising Energy CostsIt is official. Inflation is back. But not everywhere. Food inflation is on the decline. All three major crops, Soybean, Wheat, and Corn have declined substantially. Bearish sentiments rings loud across agri with ample supplies combined with solid harvest expectations.
Among crops, corn has fared best. Its prices have not declined as much. Corn outlook is positive given South American supply uncertainty and gasoline linked demand spike.
Corn prices face downside risk from ample supply in the near term. Prices have the potential to spike during later part of the year due to supply uncertainty and higher consumption.
Traders can deploy a calendar spread in CME Corn futures comprising of a short September 2024 Corn Futures (ZSU2024) and a long March 2025 Corn Futures (ZSH2025) to gain from shifting dynamics.
RECORD US CROP WILL SUPPRESS NEAR TERM CORN PRICE
The US produced a record 389.69 million MT of corn last year as per latest USDA figures. Massive production is a result of record high yield of 177.3 bushels per acre.
Globally, corn production in the current marketing year is expected to reach a record 1,227 million MT, due to the US crop last year.
Higher supply is expected to lead to a buildup in ending stocks. Stocks are expected to increase from 302.19 million MT to 318.28 million MT. This represents a buildup of almost 16 million MT.
Ample supplies are a headwind to near term corn prices.
USDA ESTIMATES MAY BE TOO OPTIMISTIC
Global corn production forecasts by USDA may be too optimistic. Upcoming harvests from Brazil and Argentina may spring surprises to the downside.
USDA’s forecast for the Brazil corn crop is currently at 124 million MT. Brazil’s national agricultural agency - CONAB - puts the harvest at 110.9 million MT as per their latest crop survey . The difference stems from USDA’s assumption of higher planted area.
CONAB recently cut its estimate for planted area pointing to lower crop prices dissuading farmers from planting corn. Planting in Brazil is delayed from its usual schedule.
USDA is also optimistic about the Argentinian crop. It reduced its forecast for Argentinian corn by 1 million MT to 55 million MT in the latest WASDE report. However, that is still optimistic given the ongoing spread of spiroplasma disease. Last week, Argentina’s Rosario Exchange slashed corn estimates to just 50.5 million MT from a previous forecast of 57 million MT citing crop loss linked with diseases.
USDA estimates are 18 million MT higher than harvest forecasted by regional agencies across Brazil & Argentina. Corn supplies may end up being much tighter than the USDA is currently forecasting if harvests come softer than anticipated.
ETHANOL PRODUCTION IS LIKELY TO INCREASE CORN CONSUMPTION
USDA increased its forecast for corn consumption for ethanol production by twenty-five million bushels (635k MT) in the latest WASDE report. With gasoline and crude prices on a tear, ethanol blending into gasoline is likely to remain elevated during the coming months driving corn demand.
Sustainable Aviation Fuel (SAF) serves as another source of corn demand in 2024. The Biden Administration is set to release its primary climate model for SAF subsidies under the Inflation Reduction Act in the “very near future”.
While recent reports have stated that the model may be restrictive compared to corn-ethanol industry expectations, the subsidies will undoubtedly drive higher demand for corn-ethanol.
CORN FUTURES CONTANGO IS STEEPENING
Corn Futures term structure has become noticeably steeper over the past three months. Premium for dated contracts have increased. Specifically, corn delivery in later part of 2024 and early 2025 command higher premium.
MARKET METRICS ARE TURNING LESS BEARISH FOR CORN
CME Corn Options positions are currently skewed bullish with a put/call ratio of 0.84. Over the past week, bullish positioning has increased with large call option buildup on June (OZCN4) and December contracts (OZCZ4).
Asset managers have also started to reduce net short positioning on CME Corn Futures since positioning reached its all-time low mid-February.
HYPOTHETICAL TRADE SETUP
South America corn supply remains uncertain even as the US delivers a record harvest. Corn prices will remain bearish in the near term amid ample supplies. Longer term, supply shocks and rising demand has the potential to send corn prices higher. This is evident from steepening contango in CME Corn Futures.
To express the view on corn prices increasing towards the end of the year, traders can establish a calendar spread comprising of short position in September 2024 futures (ZCU2024) and a long position in March 2025 futures (ZCH2025). CME corn futures offer deep liquidity even for contracts in 2025 allowing such calendar spreads to be executed efficiently.
A hypothetical trade setup comprising of the calendar spread consisting of short ZCU2024 and long ZCH2025 also offers margin benefits. The calendar spread position is margin efficient with the entire position requiring margin of just USD 350 as of 15/April/2024.
This position not only benefits from the supply trend but also the seasonal trend in corn prices. Corn prices tend to rise from October through February due to seasonal factors. Between April to September, prices tend to decline. This hypothetical spread is supported by both trends.
• Entry: 1.06185 (ZCH2025/ZCU2024 = 485/456.75 as of 12/April)
• Target: 1.076
• Stop Loss: 1.052
• Profit at Target: USD 323 (Target price = 1.33% higher than Entry => Profit = 1.33% x notional = 1.33% x (485 x Contract Size) = 1.33% x (485 x 5000/100))
• Loss at Stop Loss: USD 225 (Stop level = 0.93% below entry => Loss = 0.93% x notional)
• Reward to Risk: 1.44x
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
SOYBEANS Excellent buy opportunity.Soybeans (ZS1!) has been trading within a Channel Down pattern since early 2023 just last week, it almost hit its bottom (Lower Lows trend-line). So far the price has reacted with a minor rebound, while the 1D RSI has been on a major Bullish Divergence (Higher Lows against the price's Lower Lows).
This is the best buy signal since the May 31 2023 bottom where again after an RSI Bullish Divergence, the price rebounded aggressively to the 0.618 Fib on a +12.56% rally. So far within this long-term Channel Down, we have had similar rebounds of +12.56%, +14.26% and +11.86%.
Assuming the minimum of +11.86%, we are setting a Target on Soybeans at 1263'5, which may almost make contact with the 1D MA200 (orange trend-line), which has been the natural technical Resistance since April 24 2023.
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CORN Excellent 4-month buy opportunity.Corn's (ZC1!) price action since the COVID recovery in early 2020 is showcasing an amazing resemblance with the previous full Cycle of 2009 - 2014. This is better illustrated on the 1M (monthly) time-frame. Both started the Bull phase on a roughly +175% rebound on the 17 year Support Zone, topping on a Higher Highs (which was a Bearish Divergence with the Lower Highs of the 1M RSI) and then declined both astonishingly by -51.93%.
This is where the market is at now. In 2014 the price rebounded by +28.78% back above the 1W MA50 marginally and just below the 0.382 Fibonacci retracement level, before resuming the long-term decline to the 17 year Support Zone.
As a result, this presents an excellent 4-month buy opportunity with 506'4 as the Target (+28.78%). Notice also that the 1M RSI is on the exact same level (33.75) as it was on the January 2014 Low, and is reversing.
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WHEAT Bearish pressure under the 1D MA50 and MA200.Wheat (ZW1!) has been trading within a long-term Channel Down pattenr since July 2022. The price is currently on a bearish sequence below both the 1D MA200 (orange trend-line) and 1D MA50 (blue trend-line). It appears that technically this is a Bearish Leg following the December 06 2023 Lower High rejection, similar to the one that started on the October 10 2022 Lower High.
That sequence reached the Channel Down bottom on the 1.786 Fibonacci extension. As a result, our long-term Target is 455'7.
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ADM: Bullish Harami on the Weekly at a Bullish Gartley HOP LevelArcher-Daniels-Midland is sitting at the HOP level of a Bullish Gartley aligning with support with a Bullish Harami Visible on the Weekly Timeframe after setting record-breaking weekly volume into the test of the Support Zone.
ADM will close and confirm the Weekly Harami in less than an hour and from there we would expect to see ADM make an effort to fill the weekly gap above, perhaps going all the way up to the 61.8% retracement.
EU faces pressure to defuse mounting anger as farmers protest aGiven the mounting anger and protests by farmers across Europe, there appears to be a significant challenge stemming from contradictory and potentially detrimental agricultural policies. The grievances include increased costs for agricultural diesel, additional fees for water consumption, complex regulations, and objections to bans on pesticides and herbicides mandated by the EU's Green Deal. The farmers are also concerned about the import of beef from countries like Brazil and Argentina, which they argue have laxer rules on animal welfare, making competition difficult.
This unrest, originating in France but spreading to neighboring countries, signals a broader issue with unpredictable government decisions affecting agriculture. In the Netherlands and Germany, similar protests have arisen over regulations to cut nitrogen emissions and phase out fuel subsidies, respectively. In Germany, there is also resentment over what is perceived as the unfair application of environmental policies.
With protests extending to Poland, Romania, Slovakia, Hungary, and Bulgaria, concerns range from unfair competition from cut-price cereals to high taxes and tight regulations. The impact of droughts, floods, and wildfires, combined with the squeeze from green policies, has fueled discontent.
For investors, this could be a pivotal moment to consider commodities such as cereals, soybeans, and copper. The disruptions in European agriculture may create fluctuations in the market, making these commodities potentially attractive for investment. However, it is crucial to monitor developments closely as tensions continue to grow, and the agricultural sector shapes up to be a major issue in the upcoming European Parliament elections in June.
EU faces pressure to defuse mounting anger as farmers protest aGiven the mounting anger and protests by farmers across Europe, there appears to be a significant challenge stemming from contradictory and potentially detrimental agricultural policies. The grievances include increased costs for agricultural diesel, additional fees for water consumption, complex regulations, and objections to bans on pesticides and herbicides mandated by the EU's Green Deal. The farmers are also concerned about the import of beef from countries like Brazil and Argentina, which they argue have laxer rules on animal welfare, making competition difficult.
This unrest, originating in France but spreading to neighboring countries, signals a broader issue with unpredictable government decisions affecting agriculture. In the Netherlands and Germany, similar protests have arisen over regulations to cut nitrogen emissions and phase out fuel subsidies, respectively. In Germany, there is also resentment over what is perceived as the unfair application of environmental policies.
With protests extending to Poland, Romania, Slovakia, Hungary, and Bulgaria, concerns range from unfair competition from cut-price cereals to high taxes and tight regulations. The impact of droughts, floods, and wildfires, combined with the squeeze from green policies, has fueled discontent.
For investors, this could be a pivotal moment to consider commodities such as cereals, soybeans, and copper. The disruptions in European agriculture may create fluctuations in the market, making these commodities potentially attractive for investment. However, it is crucial to monitor developments closely as tensions continue to grow, and the agricultural sector shapes up to be a major issue in the upcoming European Parliament elections in June.
