This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Tuesday May 31, 2016.
Happy Tuesday. Thanks for checking in with TWIG on this Tuesday morning. Nothing gets you over your three day weekend hangover better than reading about a short work week.
It is considered a holiday week so everything gets pushed back one day. Today we get crop progress and Friday we will see exports. ENERGY TRADERS ALERT!- OPEC meets on Thursday, be ready for wacky price action following the meeting. The next big USDA report doesn’t come out until Friday the 10th, with June WASDE. After that, it’s the Grain Stocks and Acreage Report on June 30th.
CORN: I hope this blog helped get you through your Memorial Day- BLOG. South American fundamentals are probably on the forefront of traders’ minds this week, followed by US planting pace and an overall weather story (newsflash, there isn’t one.) Prices in SAM have risen; US corn is now the world’s low cost origin through at least the July delivery period. How long does this hold? Safrina corn comes out of the ground in a month, if it’s better than expected (expectations are low) then we could go back into liquidation mode (350-370 levels) when the glut of corn stills sitting in grain bins across the country comes out.
SOYBEANS: Soybeans made another run at 1090 in the overnight. It feels like soybeans have paused for corn and wheat to catch up. Corn has done some damage as the ratio in old crop prices is falling back toward its long term averages. Soybean planting pace was a concern going into the weekend but coming out of it I don’t know if it’s there. US farmers in the upper Midwest should have a wide window to get completed after a pretty solid weekend with little precipitation. After we get planted, I think prices settle back a bit and wait for the planting report at the end of June.
WHEAT: Wheat is tagging along, riding the fundamental coat tails of the corn markets. There is little on the demand side to report that will get prices going. Other than disappointing yields in 2016 crops, the next big jump starter for US prices probably doesn’t exist until planting season for the 2017 crop. Basis out west is pathetic. The further south you go, the more people you will find selling KC cash wheat with a 3 handle on it. The only advice I can offer is to go out and buy longer term call options to help you recoup losses. I understand this makes little sense to anyone with wheat in the bin, but at these levels you need to take drastic measures to get better prices.
COTTON: The close of last week was fantastic! But the open last night was not. Dec cotton traded 64! But as I write this its back toward the 100 day EMA below 62. The charts look really bad after this selloff and I wouldn’t be surprised to see a pull back to where the EMA sits near 61.00 cents before gaining more ground. Cotton will go as the macro commodity complex goes, it feels weak here.
CATTLE: Box beef cutout closed the week sideways with Choice above 220 dollars for another week while Select cutouts fell to just above 200.00. The spread of +20 between the two is at the high end of the range for the last quarter. Money flow remained negative into the close on Friday as what seems like continuous short covering in corn brought the benchmark for feed prices to 7 month highs. In my opinion, the low prices we see on the cattle board here in Chicago are directly tied to corn prices rallying. Prices for feeder cattle at the Oklahoma City Stockyards were $5 to $10 lower compared to the previous week. Stocker calf prices were $8 to $15 lower. If you could disregard the feed story for a second, the consumption numbers are very solid. Cold storage numbers were very supportive last week. There were 452 million pounds of beef in cold storage at the end of April according to USDA’s monthly Cold Storage report. That was down 3.2 per cent from the month before and down 6.6 per cent from a year ago. That is the smallest stocks of frozen beef since the end of 2014.
So what changes things? I think the South American yield numbers need to be discovered and digested first, there is still a lot of uncertainty about what is available within Brazil and Argentina’s domestic markets. The second thing should come about from the USDA’s WASDE report in about 10 days, which would be high US corn production numbers and carryout’s over 2 billion. Money flow is driving this train, and unfortunately for the cattle markets the money flow is being driven by something other than cattle fundamentals. Because of this I feel August –Nove feeder cattle have a good chance to perform as the second quarter wraps up.
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