This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Thursday May 26, 2016.
Upside price action in all 3 row crops and derivative feed markets is being seen. Front month corn is trading at 7 month highs, trading above the April highs as I write this. How long can this go? It’s certainly head scratching for fundamentalists as the amount of product on hand in both South America and the US.
- Weekly corn export sales of 1.381 MMT for 2015-16 and 246,200 MT for 2016-17 came in near the upper end of lofty expectations
- Soybean export inspections 456,800 for 2015-16 & 150,000 MT for 2016-17 were at low end of expectations
- Wheat sale REDUCTIONS of 9,900 MT for 2015-16 & 354,500 MT for 2016-17 were within expectations
- Net upland cotton sales totaling 128,500 RB for 2015/2016 were down 32 percent from the previous week, but up 28 percent from the prior 4-week
CORN: 1.8 billion bushels will be the amount on hand in September BEFORE we harvest this year’s crop and July trades over September? Conditions are greenhouse like across a lot of the growing regions and basis is widening almost everywhere. So what the heck is going on with the board? I think its soymeal driven, the July soymeal contract is trading as if product doesn’t exist and that is putting pressure on its substitutes like DDG’s. Ethanol has blown out the top side of resistance which tells me the market needs to price ethanol higher to produce more bi-product DDG. Regardless the reason, the rally is on and this analyst is prepared to spend his 3 day weekend wondering how the open will be on Monday night (reminder Sunday is closed). If you are producer with old crop corn in the bin, this is a gift. Home run sales targets for me sit at 420 and 440.
SOYBEANS: Spot prices in Brazil for soybeans are above the 2012 high while the US market sits right below 11.00. The price action is extraordinary, bring the strongest shorts to their knees. The one thing I notice that has me wondering how much more prices can rally would be the fact that 2017 Nov soybeans have barely moved. Part of that is a result of spreading, the other would be the idea that all of this price action is going to bring more acreage next year. Demand is growing yes, but not by 10%. And at these prices in 2016, the US farmer should have attacked the soybean markets with supply. Because they didn’t this year, I expect them to do it next year which could limit things. Bottom line, soybean meal is up another 2% before the open, expect a really wild ride into the weekend.
WHEAT: Fund buying is starting to show up in wheat. If I am looking for something to buy, I would look at Minnesota wheat. It’s sitting right above its 100 day EMA and has the ability to run on weather rallies. KC and Chi are decent substitutes but seasonals are negative between now and harvest. Regardless, I expect this rising tide to eventually raise the wheat boat so I would recommend rolling calls lower if you have them on for July or Sep delivery. I would only buy because the outside markets are higher, fundamentally wheat remains cheap globally and domestically. Yields will probably grow from here but a car load of wheat costs about 22,000 usd this morning vs a car of soymeal going for about 40 k. Eventually the protein content of wheat will catch on and follow the meal and corn, in my opinion.
COTTON: Dec cotton is back trading back above 63 cents as the rising grain price tides are helping cotton as well. Much like corn, the market is fundamentally supplied and new crop production is off to a solid start, yet prices are higher. The 100 day EMA has been fantastic support. I look to hedge more cotton in the 65 cent range if given the chance, I might even settle for 64. I worry about a lot when it comes to cotton, mainly fundamentals, Chinese supply/demand and US carryout’s. All of it is bearish.
CATTLE: Continued sideways action in cash cutouts has me convinced cattle prices are taking the brunt of the price move being made in the feed markets. There is little confidence right now that feeding profitably will happen with feeders at these prices and feed going higher. The fat cattle markets are steeply inverted with cash trading in the low 130’s while June futures trade 12.00+ lower and August futures trade 17.00+ lower. Something is going to break soon, either the cash falls or the futures rise. I remain optimistic it will be the latter when this grain market runs out of steam.
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