This is a sample entry from Craig Turner’s email newsletter, Turner’s Take, published on April 07, 2014.
In this issue:
- Corn: Dec Corn Should Now Lead Corn Market. Stay Bear Spread CZ/CN
- Soybeans: November Soybeans Has Upside Potential. Looking at SX4/SX5
- Wheat: NASS Weekly Crop Conditions Start Today
- Energy: Stick with CL & NG Bear Spreads
1) CORN: Dec Corn Should Now Lead Corn Market
When you look at the corn supply from the March 1 stocks report and the estimates for the April WASDE, the market will gain confidence ending stocks will be around 1.400 billion bushels, give or take 100 million. This is significant because at 1.400 billion bushels, old crop supplies will be viewed as “adequate” for the rest of the year. The risk of uncertainty in Supply and Demand will now transfer over to December Corn.
Dec Corn should lead the market going forward. With old crop pretty much accounted for, it is new crop that can have the wide ranges in the Supply and Demand table. If the USDA uses a 165 yield then we have about 1.9 billion carryout for 2014-15. Keep in mind that 165 would be a record. If we have a 155 yield the carryout is more likely 1.0 billion. That could be the difference between $4.00 and $5.50 corn. A 150 yield could push to $6.00 and a 145 or lower brings us back to $7 and $8 corn from a couple of years ago. Keep in mind; this is only the supply side of the equation. This does not take into account any unforeseen increases in demand.
Moral of the story is Dec Corn should be the leader now. If plantings are delayed and the summer weather is hot and dry, we could see Dec Corn rally to $5.80 and maybe even $6.00 depending on the conditions. If the growing season is perfect, we add some acres, and the 165 yield comes in, we are making a charge to $4.00 by harvest.
We are bear spread CZ/CN from +8.50 cents. Given that old crop carryout will be adequate but the uncertainty switched to new crop, CN/CZ should be trading at a very small inverse to a modest carry. I think we go to -10 or -15 in the next few weeks.
Open Position: Long Dec Corn/Short July Corn from +8.50 cents (premium to July).
CN/CZ Daily Chart:
2) SOYBEANS: November Soybeans Has Upside Potential
The big picture for Soybeans is China increased imports about 10mm tons from last year (HUGE NUMBER) and they have a lot of room to expand when you consider the room for growth in per capita consumption. Some say the US and South America need to add about 5mm to 6mm acres a year to meet the growing Chinese demand.
This is a very long term trend, but when you consider old stock soybeans are tight, November is not even planted yet, and SN/SX is about $2.50 to July, and we need a big crop just to get to a 250 carryout, new crop beans could be setting up for higher prices this summer.
For the first time all year I am turning bullish SX. I like the SX14/SX15 spread. It is around +40 cents now (14 over 15). Last year we traded $2.00 over and the year before $4.00 over. Keep in mind if we get a huge crop and a 300mm carryout the spread could trade to -50, though that has not happened since 2008.
SX14/SX15 Daily Chart:
3) WHEAT: NASS Weekly Crop Conditions Start Today
The NASS will kick off their new season of Weekly Crop Condition reports today after the grain close. First up are winter wheat conditions, which we have been receiving reports on from individual states for a while now. Expectations are this year’s crop is a little better than last year’s crop at the same point in the growing season.
4) ENERGY: Stick with Crude and Natural Gas Bear Spreads
We are bear spread July/June Crude from +$1.00 and Oct/July Natural Gas from +0.015. The crude spread is about 20 cents ($200) in our favor and we are right where we got in for Natural Gas. I am bearish on Crude and Natural Gas due to the fundamental outlook, technical analysis, and seasonal patterns.
CLM/CLN Daily Chart:
NGN/NGV Daily Chart:
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