Turner’s Take Weekly – Fresh Look at Grains

This is a sample entry from Craig Turner’s email newsletter, Turner’s Take Weekly, published on November 11, 2014.

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GRAINS

Andy Daniels put out a great wire today in Grain Analyst (free for DT clients or available by subscription). Turner’s Take has been out of the grain markets for the most part since we were stopped out of our Nov14/Nov15 bear spread with a small profit (which I thought should have been a bigger one) and also stopped out of our Corn vs Bean spread with a 40 cent profit (which I also thought could have gone much farther based on the market conditions). Since then we have not been doing much in grains with the exception of commenting on the Meal market. It has been a tough market to get a handle on in the past month or two and I want to go over a few great point Andy brings up today in his wire. This is me paraphrasing and not Andy in his own words…

1. Corn is looking more bullish than bearish:
   • USDA dropped 2014-15 corn yields and was 2bpa lower than the analyst expectations.
   • Demand (exports) was not adjusted lower as many bears hoped for 2014-15 corn.
   • Farmers are well healed, can store a lot of grain, and don’t need to sell at these prices
   • For 2015-16, you can reduce acres by 3-4mm for corn due to favorable economics for growing soybeans at current prices (soybeans take acres from corn next year)
   • Late Brazil plantings will have major impact on Safrina Corn while farmers will also prefer to plant beans over corn. And thinks this could result in an export bump for 2015-16 US corn by +200mm
   • Less acres next year and higher exports could mean a lower carryout in 2015-16 by 400-500mm bushels.
2. Soybeans are more mixed:
   • New crop looks bearish if you take 450mm 2014-15 carryout, add 3mm more acres next year with 45bpa, and the models start to suggest 700mm carryout for 2015-16. I had to read that twice.
   • Market is not trading bearishly, it is trading bullish now because we do not have “normal conditions”
     • Rail Logistics a complete mess and not likely to get better in the next 1 to 3 years.
     • Surge in domestic energy production and lack of pipeline availability has led to railroads being the transportation of choice.
     • Railroads prefer energy transportation over grains as energy transportation is steady business while grains are seasonal.
     • Transportation costs could increase handling costs by 50 cents to $1.00 per bushel
     • To get an idea of how monthly rail traffic has increased, take a look at data posted at the Association of American Railroads “https://www.aar.org/data-center/rail-traffic-data

Based on what I have been writing about in Turner’s Take and what Andy has been writing about on Grain Analyst, I continue to stay on the sidelines in the grain markets. I personally think 2015-16 corn is undervalued compared to 2015-16 Soybeans, but if 2014-15 beans are going to lead the market higher, my new crop corn vs new crop beans idea is a loser for the time being. The spread market in the grains has been challenging and that is why I have preferred to stay in Livestock and Energy spreads lately.

For now I am on the sidelines but actively looking for an opportunity. As for the rail issues and the new dynamic of US energy and grain transportation, take a look at the three charts below. Since 2010, energy rail transportation has been growing while grains have been declining. The increased demand for energy transportation is a big reason why we can’t get meal to where it needs to be.

***Please note all trading ideas, risk management, and position updates will be done via Turner’s Take Daily. If you are a client and do not receive Turner’s Take Daily, please contact your broker or account representative to receive complimentary access. If you are not a client you may subscribe monthly or annually to Turner’s Take Daily at www.turnerstake.com***

Energy Weekly Traffic Data:

Grain Weekly Traffic Data:

All Weekly Traffic Data:

CRUDE OIL

I think Crude Oil is transitioning from a market of tight supply to adequate supply. We are seeing that in the increase energy production (just take a look at that rail data!), we are seeing that in the drop in crude oil prices (have you noticed lower gas prices at the pump lately?), and we are seeing it in the spreads. For those of you who also subscribe with MRCI, you will also see crude oil bear spread pop up this time of year.

I really like the spread charts in crude right now. Nothing shows a market going from supply shortage to supply surplus than a spread chart. Below is April vs Jan, a particular spread we like at Turner’s Take Daily, but many of the crude spread charts look the same, going from the upper left to the lower right (to borrow a line from Dennis Gartman).

***Please note all trading ideas, risk management, and position updates will be done via Turner’s Take Daily. If you are a client and do not receive Turner’s Take Daily, please contact your broker or account representative to receive complimentary access. If you are not a client you may subscribe monthly or annually to Turner’s Take Daily at www.turnerstake.com***

Jan/April Crude Oil Spread:

CATTLE

The cash market seems to be topping out around $168-$169 but many in the industry are projecting 2015 Q1 beef supplies down 7%, which will translate into a new record low. That would imply we would not see a top in the cash market until sometime in the late winter/early spring of 2015. I think you can already see the market expecting a top coming in the next few months as live cattle futures lose momentum and fail at $170 resistance. I probably sound like a broken record on this, but the futures spreads have been trading bearishly, not bullishly as one would expect in a healthy bull market.

I think the job of the market now is to price February and April high enough to discourage sales and get through what I think is going to be the tightest the cattle will be for a long, long time to come. We did well with our Dec vs Feb Live Cattle bear spread and I do like the Feb vs April LC bear spread (which was our MRCI trade of the month for November) but there may be one other Live Cattle spreads that some traders may prefer based on their risk preferences. I will be writing about that tomorrow in Turner’s Take Daily.

I like seasonal spread trading, and the traditional plays give the trader a nice window on how the fundamental supply and demand for commodities flow in a normal year. However, if you can apply those fundamentals and then take into account what is going on in a specific marketing year (like 2014-15 Cattle), I think you can come up with other spread ideas that may have a better risk/reward if you are correct. I have my own charting software where I can generate seasonal patterns, but I was also able to use the MRCI “Special Spread Charts” and see the same pattern I was looking for, so maybe I should just cancel my fancy broker charting package…

February Cattle:

***Please note all trading ideas, risk management, and position updates will be done via Turner’s Take Daily. If you are a client and do not receive Turner’s Take Daily, please contact your broker or account representative to receive complimentary access. If you are not a client you may subscribe monthly or annually to Turner’s Take Daily at www.turnerstake.com***

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