PODCAST: Here is the link to our latest Inside Commodity Futures podcast that John Payne and I just recorded. We take an in-depth look at the corn, soybean, wheat, and grain spread markets.
TWITTER | Follow me on twitter @Turners_Take for intraday grain market observations https://twitter.com/turners_take
WHEAT | The SRW (Chicago) Wheat spreads continue to widen as the market now thinks VSR will expand. I think we see continued weakness in July/Sept, but more importantly we see continued weakness in the spread we have been trading in Sept/Dec. I also think that the KC vs Chicago spreads are due for a bounce. I know HRW (KC) wheat looks great and harvest is upon us, but we will also have new supply of SRW (Chicago) Wheat and the VSR will expand by 3 cents per month. KC storage rates are market based by Chicago rates can be limited due to the VSR. I think the expansion allows SRW carry charges to be as high as KC carry charges. In theory that should cause Chicago wheat to lose value to KC.
If you trade wheat, you really should be up on the VSR. Here is a link to the CME VSR web site: http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/variable-storage-rate.html
July/Sept Chicago Wheat
Sept/Dec Chicago Wheat
Dec KC vs Dec Chicago Wheat
CORN | Corn has been the leader and it has to do with New Crop and the weather. Crop Progress reports on Monday showed great Good/Excellent ratings but the topsoil moisture short/very short increased from 14% to 22%. That is an issue if the weather remains hot and dry. June is a critical month for corn and much of the Corn Belt could use some rain. If we get rain the soil moisture is no longer an issue. So the corn story is all about weather. Heat and no rain leads to the crops pulling moisture from the ground. If topsoil and subsoil moisture is short and we have no rain and it is hot, yields will be negatively impacted. That is the story. The think with a weather market is if the forecasts change cooler and wetter, or we get showers that spring up across the Corn Belt, weather premium can come out very, very fast. Be careful when trading a weather market.
I still like Sept/Dec corn bear spread as we will have adequate old crop stocks and if there are issues it will be with new crop and not old crop. June can be a choppy month for this spread but I think we eventually make our way to a 10 cent carry (-10 cents) and full carry is closer to 15 cents (-15).
If a weather scare for corn turns into a drought, keep an eye on Dec Corn and also Dec 16 vs Dec 17 Corn. During a weather market from the long side, I like buying Dec Corn and I like bull spreading Dec 16/Dec 17 corn. Charts are below.
Dec 16 Corn
SOYBEANS | I think soybeans are consolidating. It is too early to worry so much about the weather. Soybeans are more sensitive to July and Aug weather so they have time to wait for the rain to come. Traders need to keep an eye on the export market and if demand for old crop and new crop soybeans continues to be strong.
Also keep in mind we have the June 30 acreage reports soon and we will see if the USDA adds soybean acres. Every acre they add could boost new crop ending stocks by 46mm bushels. A two million acreage increase could add 90mm bushels to carryout, so that could be a big deal for prices.
For now I am watching Nov 16 vs May 17 Soybeans. Nov 16 is going to be viewed as US new crop while May 17 represents when we will have South American new crop soybean available to the global export market. I think we will see some consolidation but if exports come in strong, the market is disappointed with the June 30 acreage addition, or weather continues to be an issue, I think SX6/SK7 can go a lot higher. Stay tuned!
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