This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Friday, June 27, 2014.
We have arrived at first notice day for all of the July grain contracts. If you are long July futures, you will be open to delivery starting on Monday. Also, it’s important to remind that once a market goes into delivery mode, there are no longer trading limits for that month. So be careful if you are in July futures come Monday at 11 am central time. That really goes for everyone trading the report.
TWIG Afternoon Edition for 2014-06-27
We had a consolidation week across all 3 major row crops, with corn beans and wheat all trading within ranges just off recent lows. There was not much I can find that has the capability of changing the supply story organically. Weather is still fantastic across the majority of the growing region, besides the endless rain in Minnesota and NW Iowa. Wheat harvests have been slow in the south, but weather looks to be drying out in coming days. I imagine we see a harvest jump next week. Other than that, everything looks great. The long term forecasts look very supportive for good yields. Thanks to the folks at Chicago Weather Group for all the hard work.
The trade is essentially took a breather this week as the report on Monday will have much more influence on grain and oilseed than anything we observed this past week. Below are the expectations for the outcomes per the Reuters poll. As you can see, the acreage estimates are really tight for corn. If we’re going to get a consensus surprise, I think it comes from lower corn numbers. I have been hearing a few reports from seed dealers and manufacturers that corn seed sales were down more than expected. This supports an argument I have that due to later plantings and economics, beans actually got more acreage than expected. The corn/bean trade has been so one sided over the past year, I just have a feeling that one of these days a surprise will cause a surge in the other direction. I am keeping an eye on the November/December 2015 contracts for better clarity on this. Both are sitting on long term support, but only Corn is at levels where any deterioration in price will cause loss of acres. I believe we still see 1100 beans get planted but I’m not so sure about sub 4.00 corn. This will be a theme I will be talking about over and over the next year, so get used to the story now so I you know what the heck I’m talking about.
When It comes to wheat, I’ll be watching the spring wheat acreage estimates along with stocks. Remember folks, the people who do the surveys for these reports are not the same ones who do the monthly WASDE’s. Why? Who knows, I’m not smart enough to explain how government bureaucracy works. Regardless, it is in these reports where we will sometimes see the USDA “lose” or “find” supply. Just take a look at these charts, the represent the moves in price following the numbers. As you can see, surprises are a normal occurrence (does that make them a surprise then?)
THE SCHEDULE
On to the schedule for this week, the grain report releases were somewhat as expected this week, besides a surprise in soybean exports on Thursday. Supplies in old crop beans are seen as fixed as of right now. Any shocks to demand through exports or shocks to supply through weather are going to send waves through the front month bean markets. We saw an example of that on Thursday.
The macro picture hit a bit of a rough patch with US 1st quarter GDP coming in worse than expected at negative 2.9%. This was about 1% below expectations and in my opinion a balloon popping dart at the argument that the US economy is in any position to tighten current monetary policy. I think this is why you have actually seen the equities markets hang in. It’s almost as if bad news is good news for the markets because it gives us an excuse to keep the iv drip that is Quantitative easing in a bit longer. From a grain and livestock standpoint, this is a long term supporter of prices. The biggest threat to commodities prices is always a more attractive alternative than holding them, the interest rate that is offered at banks represents that opportunity cost. When rates are near 0% like they are now, or even negative like they are in Europe, the better play for folks with sufficient cash positions is to hold on to product. Keep your eyes on Copper prices; I think they do a good job of forecasting Macro risk to commodities. A break over 3.25 or a break under 3.00 could be telling.
THE CHARTS
Dec Corn
Nov Beans
Sep Chi Wheat
Sep KC Wheat
LINKS OF THE WEEK
Dupont Cuts Earnings Outlook, Citing Soybeans and Bad Weather
US Corn Reserves Expanding Most Since 2005
Be Careful What You Wish for in China PMI Rebound
Good luck to everyone trading on Monday. I’ll be here nice and early on Monday to get an early start on the pre-report trade in grains and the post-report trade in the hogs. I expect madness in the hogs after this number gets released this afternoon after the close.
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This Week In Grain - This Week in Grain (T.W.I.G.) is a weekly grain and oilseed commentary newsletter designed to keep grain market participants on the cutting edge, so they can hedge or speculate with more confidence and precision.
Futures Traders’ Guide to the WASDE
Designed exclusively for futures traders, this comprehensive guide will help you understand the USDA World Agriculture Supply & Demand Estimates For Corn, Soybeans and Wheat reports.
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