Excell with Ag Options: Navigating Corn and Soybean Volatility Ahead of the October WASDE Report

The September USDA WASDE report ended up being a catalyst for price action, even if it was not the price action that the headline details may have suggested at the outset. The USDA’s corn outlook showed a modest production increase up to 15.186 billion bushels. However, analysts were expecting the USDA to move that number in the opposite direction with a consensus estimate of 15.076 billion bushels. Also, The USDA unexpectedly raised its estimates for per-acre yields to 183.6 bushels. The soybean figures aligned more closely, with the USDA slightly lowering its production estimate to 4.586 billion bushels and keeping per-acre yields steady at 53.2 bushels per acre.. On the surface, most analysts expected these results to be bearish for corn and neutral for soybeans. However, as you can see in the chart above, corn has risen since that report and is on the verge of breaking out above the Ichimoku cloud, with MACD trending higher and the RSI not at overbought levels. Soybeans have also risen but have not yet broken out, trailing the surge in corn prices. How does that happen?

In the classic trading book 'Reminiscences of a Stock Operator,' Jesse Livermore cautions that prices don't always decline on bad news. The fictitious trader discusses how that is a sign that everyone who can be short is already short, suggesting that this price action lays the foundation for a potential short squeeze higher. Corn got bearish news, and while it initially tried to go lower, it ultimately turned around and is now breaking out after a year of relentlessly bearish price action. One reason this may be happening could be that managed money has been covering shorts into the report and especially after the report. From the Commitment of Traders Report, one can see in the top chart that the corn short is in the process of being covered from the shortest it had been in five years. A trader can also see that the short base in soybeans was also at a five-year high and is in the process of being reduced but not quite to the magnitude of corn. With another catalyst coming up in the October 11 WASDE report, could markets continue to see length added?