This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Monday May 23, 2016.
This week will be a wind down week into Memorial Day weekend. Reminder, US market hours will be adjusted next Monday. Today we get livestock cold storage numbers combined with crop progress numbers. Other than the normal reports, it should be a quiet week from the macro standpoint. On Friday we do get US GDP numbers along with a Janet Yellen speech, but I don’t expect any lingering influence there.
SOYBEANS:We need to start with soybeans as the squeeze in meal is ON. Someone was caught short on Friday as July soybean meal caused the following price action to take place in the July August soymeal spread.
The supply of quality soybean meal appears to be the problem and those who say they have it are being demanded it be brought to the table, now. The resulting price action on Friday had July-Nov soybean spreads looking very similar with July up 10 and Nov down 10 at one point on Friday. This screams of capitulation in July but I am not willing to call this bean party over yet, especially since the bulk of the US crop is still sitting in seed bags.
Weather going forward appears to be solid with summer conditions hitting the upper Midwest yesterday. Dry, warm conditions should satisfy the bull for now but the trade remains very, very jumpy. I expect this to continue all summer.
CORN: Corn joined the rest of the ag complex and traded lower in the overnight. The US weather forecast hasn’t changed from previous runs, although rains in the eastern corn belt on this weekend will slow fieldwork where it’s most delayed. Elsewhere, planting will very active through next Tues/Wed, and steady rain follows through the 6-15 day period. Longer range outlooks don’t show much of any heat/dryness outside of that 3 month model that has bulls talking. This week we will get our first look into model runs for first whole week of June. The longer we go into June with a good weather pattern the quicker I see weather premium come out of the market. Take a look at December (16) vs December (17) corn spreads as a way to play this.
WHEAT: Spec traders are now 114,000 contracts short of all us wheat. This probably reflects the fundamentals pretty well, but my concern is still off the record short number near 150 k. I think the market is tolling for lows at this point with new lows near 441 looking to be tested in July KC wheat. The spread between July KC and July Corn sits at 50 cents. With long term lows being approached and spreads vs corn remaining tight, I think the wheat market gets some demand soon. I don’t know where it’s going to come from (I’m guessing feed) but the fuel for a rally is there. The problem is that without a major weather story, any rally in price could shut the demand down. I still think we see 5.00 in July KC before it expires, as crazy as it sounds.
COTTON: Cotton continues to flirt with its 100 day EMA near 6078 in December. As long as that level holds, there is hope for the bulls for a retest of the highs and an eventual test near 65 cents where I would look to target sales. US export sales have been supportive over the recent weeks even as China reports its imports down 56% year over year. Planting reports from John Deere on Friday were supportive as well. I think with acreage below 10 million acres, cotton is going to have difficulty really flushing prices at this time of the year. The uncertainty around growing conditions, especially in Texas could keep that MA as a buying opportunity rather than a sell.
CATTLE: Fundamentals were pretty steady over the past week as choice and select cutouts have maintained values relative to where they were 2 months ago. Choice sits right in the mid 220’s while select trades around 210. Cash reports of trade late last week in Kansas in the 132-134 area would also be relatively quiet relative to the past few months of trade. Unfortunately for the bulls, futures markets were been increasingly negative as we approached Cattle on Feed reports on Friday. Here are the results:
Total Cattle on Feed – 101% of last year (on expectations)
Total Cattle Placed in Feedlots- 107% of last year (above expectations)
Total Cattle Marketed- 101% of last year (below expectations)
On face value, this is a bearish number. During the last month we have seen 7 more head per 100 put into feed yards that a year ago. That is very bearish, especially close delivery feeder cattle. But something doesn’t really compute as if we have 7% more placed in yards this year than last, then the total number of Cattle on Feed should be higher or amount of cattle marketed should be lower. I expect prices to knee jerk lower, but the commitment of traders report showed bearish specs are pretty high right now. The cattle on feed number is the headline number and that being neutral combined with a factored in short position might give some reason to jump, cash would certainly reflect the front end of the fat markets trading higher in June at least. Fundamentalists like myself will continue to be patient and hope that an inverted cash market (cash over futures) will pull everything higher in the short run.
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