Rains moved through the Midwest over the weekend with a fury, dumping much needed moisture along the I-80 corridor from Des Moines to Cleveland. Describing the rains as a crop saving event may be a bit dramatic, but I don’t feel the description is too far off, especially for beans. Certain areas in eastern Iowa totaled close to 3 inches, with at least one inch falling in most areas. These rains were in no way drought breaking, but what they did provide is some certainty with which a producer can call an elevator and price some grain.
On Friday the USDA will give us a look at their yield estimates and supply/demand numbers through the August WASDE report. Regardless of what happens this week, the report should remind traders of crop losses and a tight U.S. balance sheet. On the flip side, the report could be looked at as old news with the recent rains not being factored in. Speculators have begun to exit positions as COT reports on Friday showed a pullback in fresh longs. Due to this market being incredibly long, I wouldn’t be surprised to see another 30-50 cents taken out of the corn price and 50-70 cents come out of the bean prices. A 10% correction from the highs on Dec Corn would put prices near 7.30, and 15.30 on Soybeans, although don’t rule out a test of the 14 handle. The market can be very myopic, and can discount the current situation quickly. I have a feeling the trade will begin to focus on South American planting intentions, and with the record amount of planted acres being talked about, prices may leak lower going into U.S. harvest. The markets moving averages are catching up to the price.
The schedule this week is pretty light on the economic data side of the coin. Chairman Bernanke will speak this week, but is not expected to provide any details on any further easing. Outside of the Chinese CPI released Monday evening, there isn’t much coming out that will move the greenback. The macro trade will focus on the fall out at Knight Trading along with listening for any “detente” talk, coming from Germany and the ECB.
The USDA August WASDE report is out on Friday morning. Stand by for expectations and hedge recommendations later this week. The crop progress report out today is expected to show another 2-4% come out of the good/excellent bean category and another 3-5% for corn. I would not be surprised to see a bottom made in the crop progress reports this or next week due to cooling conditions and a wetter forecast.
Monday, Aug 6
15:00- Crop progress
Tuesday, Aug 7
12:30- Bernanke speech
Wednesday, Aug 8
21:30 – Chinese CPI
Thursday, Aug 9
7:30- USDA Export sales
7:30- Unemployment claims
Friday, Aug 10
7:30- USDA August WASDE and Crop Production
THE CHARTS 14 day ma
SPECULATIVE TRADE RECOMMENDATION
For those speculating in these markets, This Week in Grain will begin to recommend a few trades it feels have a high probability of working and have a lower fixed risk. Every trade we recommend will have a minimum of 3 to 1, reward to risk ratio. Today we will take a look a futures spread, buying Kansas Wheat and selling Chicago Wheat. We will make this purchase/sale simultaneously.
Buying December KC WHEAT / Selling December Chicago wheat at a difference of 6 cents KC over Chicago.As we exit the harvest, most importers from foreign countries prefer the KC over Chicago because of its higher protein content.
Why: Because KC wheat is considered premium, we expect “par” to hold on the charts. The Chicago wheat is where most speculators go to buy wheat. Because of the high open interest in Chicago, we expect those covering positions to push this spread away from “par” and back into its normal range on the charts.
Risk: 12 cents ($600 before fees) with a STOP ON CLOSE, if the spread closes below -6 to the Chicago side, exit the trade on the open of the next session.
Reward: Exit the trade on an open order when the KC Wheat has a 45 cent ($2250 before fees) or more premium on Chicago wheat prices.
Please call your Daniels advisor or 866-825-8561 with any questions.
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
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