Why Grains Have Caught a Bid

Rain Makes Grains (Die?)

by The Alts Team, Attain Capital

Forget what’s happing halfway around the world in Greece, we’ve got a storm brewing here in the heartland of America, in the grain markets. One quick look at the Finviz quote table, and we can see grains are as a green as the commodities they represent.

(Disclaimer: Past performance is not necessarily indicative of future results)

Table Courtesy: FINVIZ

The major grains are up anywhere between +2% to a little under 5%. For those living in the Midwest this might not be a shocker, as June was one of the wettest months on record if not the wettest, putting a damper on our summer celebrations so far.  And putting a damper on ideal growing conditions, where you need just the right amount of rain. To greatly oversimplify things: too little rain, and the Corn dies of thirst. Too much, the Corn drowns.

Which brings us to the current ‘too much rain’ environment, where the only things more colorful then the table above are the maps of May precipitation versus the average – with a big swath of the country in the green to dark green color representing 100% to 500% more precipitation than normal.

Chart Courtesy: NOAA

For a slightly different look, here’s each state ranked individually on the dry to wet scale (which for some reason goes up to 121?), meaning this is the wettest May on record for Texas, Oklahoma, and Colorado.

Chart Courtesy: NOAA

While the NOAA hasn’t released June numbers yet;  the Illinois State Climatologist says June has been the wettest in the state’s history.

Chart Courtesy: Chicago Tribune 

If you like to hear it from the words of the people who spent time in the fields, Rosetta Capital’s Jim Green spent a great deal of time on I-80, traveling through the heartland of the U.S., and experienced some not so great crop conditions.

“I saw so much drowned out beans, windblown corn and major roads closed due to flooding in the largest corn county in the US of A! The water damage is more prevalent than not. That tells me we will have a tough time reaching USDA estimates on planted acres and projected yields. A warning has been issued that things are far from perfect and the funds are short.”

It seems Mr. Green isn’t the only one noticing these conditions, with the grain complex up sharply since the middle of June, and many markets going Limit Up today, leading the CME to extend daily limit moves for the commonly traded grains.

limits pic.twitter.com/BuHfO37iOU

— ken morrison (@morrisonmkts) June 30, 2015

This time last year, Ag traders were looking at riding the grain market trend down, down, down, with systematic traders joining in once the trend was established. And now it looks like the tables will be turned – with discretionary traders looking at crop conditions and the recent up move as proof prices have some upside, while systematic traders are likely getting stopped out of short trades as markets like Corn break above their 50, 100, and 200 day moving average in the past 6 trading days (June 23^th), setting things up for potential long trades if their models confirm the rally as an up trend.

(Disclaimer: Past performance is not necessarily indicative of future results)

Chart Courtesy: Barchart

Of course, there’s those out there who get worried about rain causing gains, because of the old trader saying:  “Rain Makes Grain”, with the thinking going – rain can be bad for supply, but more often than not it’s a good thing, meaning more supply thanks to the rain, not less… which would make this a head fake higher. Only time will tell.

For more information on how these ag mangers trade these markets, check out our whitepaper, “Ag Traders.”

Copyright © The Alts Team, Attain Capital