This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Monday, June 08, 2015.
Second week of grain trading in June is upon us. Can you feel that? Yeah, this is what a weather rally feels like. I know it’s only 20 cents off the lows in corn and beans, but wheat has moved almost 70 cents off its lows in a little under a month. This is a little different than the rallies seen post June 1 in 2011 and 2012, those were drought driven events. This one is from too much moisture combined with a huge number of short bets made on crop yield and acreage. So far, the short covering has been very slight in corn and beans, but it’s there nonetheless. I know the feeling I get when my sales get pressured from the downside, do you? It’s that feeling of uncertainty, driven by what could happen if these rains would continue over the next 3 weeks.
That case I just made is the bullish argument. Notice how I said nothing about demand? That’s because I don’t see or feel the buy side demand yet. That being, the guys who need sub 4.00 corn for the next 2 years to survive feeding high priced inputs and thin ethanol profit margins. When those folks buy, and they haven’t yet, you will feel it. So, on we go. Its mid-June and I don’t think I’ve seen 85 degrees in Chicago yet. Rain has been plentiful while growing degree unit days haven’t been.
So what do we do?
I think you need to take some of this rally as an opportunity to market old crop corn and beans if you haven’t already. I know 365 and 945 are not the price levels you may have envisioned, but if you are lagging old crop sales you are probably undersold for new crop, so try to have some cake and eat it too. The bean markets will pay you for it with July trading 15 over August. In wheat, the argument for sales is technical -chart resistance directly overhead- as well as fundamental -the recent rally has made US wheat more expensive relative to foreign competitors and more importantly, corn.
So going into WASDE, I would be long corn against some wheat and short the new crop wheat while buying August beans against November beans. If you are a directional player, I like buying corn here as oats break out. Buy multiple positions in options or mini’s and exit the positions every 7 cents up to 4.00 in Dec corn. (See oats chart) In beans, I would short the Nov beans with short dated September calls owned at the 10.00 level for a dime or so. In wheat, Im selling the front month outright with at the money old crop corn calls as my protection.
When looking at previous recs, I still like owning KC over Chicago. I would look to take profits on the August- December crude Oil. Stay short those beans if you sold them at 920, maybe add a call or two in short dated calls to protect yourself on Wednesday.
Questions? Give me a call or an email. I love the discourse.
Breakout move toward the 200 day MA? Does it drag the rest of the grain complex?
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