This is a sample entry from Craig Turner’s weekly market analysis newsletter, Turner’s Take, published on February 04, 2013.
In this issue:
- MACRO Markets: Cash continues to leave the sidelines and get in the game.
- CORN: Drought conditions in WCB getting better with recent rains. We continue to hold bear spread new crop CZ/CU from +35’0 and + 25’0.
- SOYBEANS: Weather is still an issue for South American soybeans but production is going to be substantial regardless of weather. We are selling SX at 13.40
- WHEAT: Bear spread WZ/WN from -12’0 and -25’0. CH/WH is trading at 30 cent premium to wheat. CZ/WZ is trading $2.00 premium to wheat. Does the market think we will not use feed wheat for corn in the next crop year?
1) MACRO MARKETS:
Since 2007 there has been a lot of money that left many asset classes and went to the sidelines in forms of cash. Investors went into cash for safety. There has also been a lot of cash on the sidelines from our monetary policy. I’ve always thought that all this money would eventually come back to the markets and it looks like that may be the theme of 2013. The biggest winner is the equity markets so far but I expect more and more money to move into a wide range of risk assets like commodities, real estate, venture capital, and the like.
There will be hiccups along the way. Europe always has the potential to cause market sell off, but at this point even a major European risk event seems unlikely. I feel the same way about the US now too. The US and Europe are by no means stellar growth prospects, but they both seem to always be able to get past a crisis and keep on going. The US dealt with the Fiscal Cliff and I’m sure they will deal with the Debt Ceiling too. Europe is dealing with its Debt Crisis and when a new one pops up, they will circle the wagons and find another solution. Even if the US and Europe continue to kick the can down the road, the markets at this point don’t mind. Kicking the can down the road is he new normal and we can go on like this for a long time before having to pay the piper.
For anyone who missed it, there was a great debate hosted by Bloomberg at Davos last week. The panelists include Bank of Italy Governor Ignazio Visco, Deutsche Bank’s Anshu Jain, French Minister of Finance Pierre Moscovici, Bank of America CEO Brian Moynihan, China Investment Corp.’s Jin Liqun and Bridgewater Associates Founder Ray Dalio. I think Ray Dalio proves to be the sharpest knife in the drawer and the discussion is worth watching just to see what he as to say.
Do you want to know what some of the leading experts in finance think about the futures of the global economy? Take a look at Bloomberg’s “No Growth, Easy Money: Navigating the New Normal”: http://www.bloomberg.com/video/no-growth-easy-money-navigating-the-new-normal-RWXY3LA0STeifwDTeEyWlw.html
The USDA World Agricultural Supply and Demand Estimates (WASDE) will be released on Friday. The February report usually does not have many surprises for US supply and demand. The markets will most likely be more focused on the USDA estimates for South American production. The absence of rains in Argentina will have an impact on crops this year which is why we have rallied.
The USDA will release its baseline acreage and balance sheets for 2013-14. I think the market makes too much of them. They have a history of inaccuracy and it is based on data from late 2012. What we really want to see is the USDA Ag Outlook that will be released February 21-22nd. This will give us our first look into the USDA acreage expectations for new crop corn and soybeans. This is just a preliminary report as the official acreage report is not until March 28th.
I typically do not take a lot of positions into a USDA report. I like our CZ/CU spread and will continue to hold. I do like selling new crop corn but I am going to hold off for now. If we have around 90 million acres harvested and 160 yield, Dec corn is at $4.00. I think with Dec Corn around $6.00 the market is calculating a 135 yield. I know 90 million harvested acres is high and so it a 160 yield, but that might be where the Ag Forum starts off later this month. Lets say we get 88 million harvested and a 150 yield? I still think we are going to be more in the upper $4 and lower $5 range. So I do like selling both CU and CZ outright, but now is not the time with such tight old crop supplies, South American weather issues, and a USDA report on Friday.
Open Position (Hedge & Spec): Long CZ13 and short CU13 at +35’0 and at +25’0. Look for the spread to move from an inverse to a carry by the time Sept 13 comes off the board. Margin $1283.
HEDGERS: Long CU13 670 Put and short Dec 13 670 Call for -3’0 credit ($150). Last traded at + 54’0. Up 57 cents on 2013 hedge. Margin is now $2300.
I was forced out of the November Soybeans short for 27 cents. I really do like selling it here around $13.40. I want to keep the position small since we are heading into the USDA report. If you don’t have a very big account then sell the mini November soybeans contract which is only 1000 bushels.
We will all be focusing on the USDA estimates for soybean production in South America. I have seen reports that the recent weather problems may cause Argentina soy production to fall from 55 million tons to 50. We will also keep an eye on the estimated Brazil production.
I still like being short SX. Even with the harvest delays and loss of crops, there are going to be a lot of Soybeans coming out of South America. The US has also been getting rain and we expect drought conditions to get better, not worse by the summer. If the US has a decent crop then Nov Beans are $2 too high in my opinion. South America will have about 35 million tons more soybeans than they had last year. Their export sales are going to take away from US exports at the end of this year.
I want to be able to stay in Soybeans through the market turbulence and trade small. So if you are not comfortable selling the 5000 bushels contract, then try the 1000 bushel contract:
Trade: Sell November Soybeans (standard or mini) at $13.40 or better GTC. Risk 50 cents to $13.90 and the initial target is $2.00 to $11.40. This trade will take time to develop so patience is required.
HRW wheat has some very tough growing conditions while SRW is looking good. I’m surprised the KC vs CHI wheat spread has not widened out more than it has. Perhaps the high price for corn is keeping the Chicago wheat prices higher than it should be. We will continue to hold our bear spread in wheat. I am bearish on Wheat this year. Did you know that CH/WH is trading 30 cents premium to wheat, yet CZ/WZ is over $2.00 to wheat? Does the market expect we will not use any feed wheat for corn in the next crop year? I don’t see corn going much higher so I think wheat will have to come down.
Open Position: Long Dec 13 Wheat and short July 13 Wheat at -12’0 and at -25’0. Last traded -20’0. Stop moved up to -10’0 (stop on close). Margin $675 per spread.
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