Markets unPACKed: USDA Report

What a Day, Thanks to the USDA!


If there is anything to look at again from today, it is a simple candlestick chart of March corn futures (Figure 1) to understand prices went limit up! Another chart to look up from today’s WASDE report is the percentage change in yield in each state. Global Agriculture columnist at Thomson Reuters, Karen Braun, aggregated U.S. corn yield data into a state percentage difference, and we thought it was the clearest picture to today’s 25-cent rally (Figure 2).

Figure 1.


Figure 2.

Ahead of this report, we spent last week preparing our book to be positioned for extreme moves in either direction. We believed the change in data was going to be in export numbers and were expecting a volatile report. While exports in coarse grains declined, it was due to lower supplies and higher prices. We experienced the price action we were expecting: U.S. corn yield down to 172 from 175.8. Soybeans were less interesting with national yield total of 50.2bu/acre, analyst expectations at 50.5.

It seems the USDA is expecting that we’re going to have far less corn by the end of this marketing year than the year before. This is shown in lower stocks, lower production, and lower ending stocks.

But, while yield estimates made headlines, ending stocks were by far more shocking and is the reason we are saying the USDA is expecting far less corn by the end of this marketing year.

Looking to ending stocks, analysts were off significantly. Ending stocks estimates came in at 1.72-1.8 (billions bushels) at 10:50 a.m., and by 11 a.m. the USDA shocked the market with ending stocks of 1.552 (billion bushels). Let us remind ourselves that how much corn we have is determined by ending stocks. This will be just as fascinating to track along with yield. Figure 3 below shows historical analyst expectations while the second chart shows USDA ending stocks projections over the years.



Figure 3.


Figure 4.

Soybean ending stocks (Figure 4) were in line with expectations.

As we conclude this article, we looked down to see the overnight session on January 12th was just about to open. Now, thirty minutes into the overnight session and March corn futures are up 11’4 to 528’6 and March soybean futures are up 10 to 1428’2.

Final point to make this evening is to be sure to watch for commitment of traders report on Friday as managed money has held record long positions in the grain complex, commercials are significantly short. We imagine some short covering and increased managed money participation in this market are likely.

Heading into the report we held on to pout-of-the-money positions on either side of the market to be prepared for an extreme reaction in either direction. Our prediction of extreme action was correct, and we took profits as the market rallied.

After the report hit we got busy analyzing diagonal spreads. We do not use diagonal spreads often but seemed like a great choice as there was limited option liquidity in the front months. Implied volatility was pumped up about 30% yesterday as well, inflating the price of options.

To jog your memory, a diagonal spread is a strategy where one enters a long position and a short position of the same type (two calls or two puts) but with different strike prices and different expiration dates.

For any additional questions around this trade or other trades, feel free to reach us at


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