This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Wednesday June 08, 2016.
Happy hump day
Half way through the week, half way to the WASDE report. Who here is excited for a volatile 2 hour Friday trade followed by a weekend waiting for a gap open on Sunday night? I for one can’t wait.
Here is some silky smooth conversation between Turner’s Take and myself to start your morning – https://www.danielstrading.com/featured/2016/06/07/inside-commodity-futures-june-wasde-previe
The price action we are getting this year reminds me exactly of what happened last year. I think I was short some 4.00 puts in corn around this time a year ago, only to see those positions smoked as corn ran all the way up into the 440’s where it stayed for about 72 hours before falling back to 380 within a few weeks. Ag markets can be diabolical, this one feels no different. That said, don’t be that deer who freezes when the car lights are bearing down on you, now this the time to get some to work managing this risk.
Overnight trade was positive again, led by soybeans. July beans are on fire again, making a run at last week’s highs near 1165. July corn is pushing on 430, it feels inevitable that we make a push toward 450. It makes little sense with supply as high as it is (see WASDE) but the bottom line is that the word out of Brazil is that chickens are starving, someone is probably willing to pay up here. This is actually a very interesting phenomenon to pay attention to as the rallies we have had in the past 2-3 years have been driven by US shortfalls in supply. This one is driven by shortfalls in Brazil/Argentina. The US farmer is the winner as they get the benefit without the heartache. Now, if the US farmer can’t produce, you better watch out to the upside as this move will look like child’s play. As of right now that isn’t the case.
For now, I sit in the Dec-Dec spread (regrettably) and have begun to build a long feeder cattle position in November feeder cattle options. Right now I am fine to scoop up cheap calls that won’t get killed if prices fall further. With open interest in the bottom 5% of the 10 year average and cash trading pretty well, I think when this grain rally runs out of steam we will see the feeders jump.
The weather in the US over coming days is going to warm up, but it’s not going to last. This is not a weather rally I would buy as the moisture levels in the soil are ample. If this kind of heat would come about 6 weeks from now, then I’m a little worried. But as of right now Iowa, Minnesota and Northern Illinois are all running at peak performance. A 10% above trend yield in those states will bring up the performance of the entire country.
For today we have US crude oil inventories out at 930 central and little else. Mario Draghi speaks tonight if you are swimming in the currency markets. Tomorrow we get USDA exports and then WASDE on Friday. Be ready…
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