PODCAST | John Payne and I recorded a new Inside Commodity Futures podcast today. Take a listen to hear our thoughts on soybeans, meal, corn and wheat. Next week we will review expectations for the WASDE and what to look for
TWITTER | I have been more active on Twitter lately and I’ve been enjoying it. Some days I am more active than others. It really depends if there is a lot of news in the market or now. You can follow me on Twitter here @Turners_Take
SOYBEANS | For me the big news about soybeans is Brazil FOB +90N, spot market at Paranagua +130N and FOB replacements at Santos +150N. What does that mean in English? It means Brazil does not have the beans and they are hard up sourcing product for their contracted commitments. They are exposed and there are only two ways out. The first is to raise local prices high enough to get farmers to sell. The second is to buy the board to limit exposure. No wonder soybeans were the leader over meal today.
Meal had been leading this rally because of the issues in Argentina. They had harvest and export delays and that sent meal higher. Now we are having shortages in Brazil. So beans are higher. Argentina is a major exporter of soybean meal. Brazil is a major exporter of soybeans.
The meal spreads have been weak lately and that is a red flag. You can make the case meal ran up too far too fast and needs to consolidate while soybeans are catching up. Keep an eye on the cash trade in Brazil, which seems to be the leader in Soybeans right now. If SN/SX and SMN/SMZ are both breaking down then I want to be on the short side of beans. Otherwise the bias should be higher due to South American production/export issues and the fact we could still have a weather market in June/July for US soybeans.
WHEAT | If you trade wheat, and especially wheat spreads, and you don’t follow the VSR, then take your hand of the mouse and slowly walk away from your computer. I don’t know why this is not mentioned enough in the grain press but we are well on our way for VSR expansion. That means grain elevators can charge 3 cents more a month for storage when VSR expands. Wheat fully carry is about 6 cents a month. That can expand to 9 cents a month. Sept/Dec wheat trading at 18 cent carry could go out to 27 cent carry.
Here is the CME VSR page: http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/variable-storage-rate.html
I could be wrong (wouldn’t be the first time) but with harvest upon us, record projected carryout, and quality wheat coming into storage, why wouldn’t Sept/Dec Wheat trade to 25 carry or wider after the VSR triggers?
VSR expansion is not in the bag yet. We are about 7 days in and the running average is 88% of full carry. It needs to average over 80% for the entire window (26 trading days). I think we are going to see it happen and that is why Turner’s Take Market Alert has been bear spread Sept/Dec Wheat
CORN | The big story for me is Argentina corn replacement FOB is +180N. Holy cow. If the US cash market was $1.80 over July then cash corn would be $6.00. Argentina does not have enough corn right now for the cash market/exports. The cash price is that high in order to entice farmers to sell their old crop. If you are on the hook for corn you committed to sell but don’t have it, you are up the creek. I do think demand has come back to the US and that is why we have seen Sept/Dec corn go to even. We are also seeing Dec16/Dec17 corn trade at an inverse.
I think Sep/Dec corn eventually comes back to a 10 or 15 cent carry. My estimates for old crop carryout is about 1.7 billion right now and new crop is 2.1 billion. That is still adequate corn stocks for both old (sept) and new (dec) crop. Considering that we will also have early corn in the south for sale and pressure sept prices later this summer, I think this spread comes back in. We could see another spike or two higher in a weather market, but for now the US should still have adequate corn stocks. The only thing I don’t like about the Sept/Dec spread is if we have massive weather issues in June but the weather forecasts look good so I like CZ/CU. I am also watching Dec16/Dec17 corn but I don’t know if I want to bear spread that now – I think I would rather wait and see if we can get a weather rally in June or July first.
Dec16/Dec17 WEEKLY Corn
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