This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Friday May 06, 2016.
TRADES I LIKE: CALL IF YOU WANT MY “WHY” AND RISK PARAMETERS.
– BUYING NOVEMBER SOYBEANS/SELLING JULY SOYBEANS
– BUYING SEPTEMBER KC WHEAT/SELLING SEPTEMBER CHICAGO WHEAT
Overnight grain markets have been in profit taking mode in the overnight session with higher dollar price action driving the trade after a somewhat hawkish Fed minute release. I think a rate hike is bearish the market but it would be made worse if the Chinese did not come along with it. Remember, the Chinese Yuan is pegged to the USD. So in effect, as our currency strengthens against emerging market and established market currencies alike, so does the Chinese currency. The last time we hiked rates in December, China devalued in the weeks following which in my opinion drove the markets into those lows during Q1. It wasn’t until comments from the Chinese central bank in February talking about keeping the Yuan steady that the markets bottomed. I’ll do my best to keep you in the loop regarding their rhetoric.
CORN – Exports were solid again this week, beating expectations. For about an hour yesterday, we saw front month July corn get over 4.00. Like I said yesterday, the corn market feels like it wants to see how prices trade above that key level. Farmer sales are keeping the price down for now, as is the option expiration on Friday but the strength is remarkable. Just a reminder that the last time front month corn tested 4.00 in late April, May futures saw 3.70 within 2 days. If you have grain to sell in the old crop markets before harvest NOW IS THE TIME. Re-own it on the board with a cheap fixed risk call if you want to keep length.
SOYBEANS – Exports came in under expectations. The fed minutes might hurt beans more than the other row crops just due to export exposure and the fact funds are uber long right now. Regarding my trade above:
“Carryout’s at these levels do not warrant an inverted market structure like we are seeing in July vs November soybeans”. That’s a quote from a weekly meeting we have with Andy Daniels and some of his “old salt” grain traders (sorry fellas, you’re older than me so you are old). A potential trade folks should consider if they want to speculate would be to sell the July Bean futures and buy the November bean futures. Their argument is the soybean story is a new crop story, not an old crop one. We have plenty of beans around, but the algo front month fund buyers are focused on July because its top step and eventually those longs must be rolled into November. If you like this idea and want to learn more shoot me an email or call the desk.
WHEAT – Exports came in above expectations! We’re at the point where that needs to be celebrated. I feel wheat is at a level where hedges need to be rolled out of as the reward to seeing 4.00 wheat is not worth the risk of a sharp move higher on some black swan where the world may need our wheat again. French and Russian wheat is offered at $180-185/MT into August, but exporters will be forced to be much more aggressive if recent production estimates are realized. The Russian crop has potential to reach 64- 66 MMTs, which will allow for an exportable surplus of 25-26 MMTs – a record – in the context of declining world trade and a weak Russian Ruble. Like a year ago, European and Black Sea will have plenty of product to keep offers low for the foreseeable future.
COTTON – July and Dec cotton was lower in the overnight but has bounced since decent exports were announced. Supportive factors are a talk of tighter supply in higher quality US product along with planting delays as southern rains prevent progress. These are just speed bumps though to a cotton trade that should probably trade lower. I’ve seen a few regression models that put new crop corn in the low 50’s if the crop is realized, but I think we still have a chance to sell 64-65 cent Dec cotton sometime this summer. BE READY!
CATTLE – With June cattle trading at 123 and reports of 132-134 trading in Kansas, I will be baffled if the fat markets don’t get above the 100 day EMA at 123. I like cattle here, especially if grain markets soften. I am patiently waiting to hedge August feeders on a move into the mid-150’s. Patience is a key in cattle though, especially with cattle on feed out tomorrow after the close.
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