This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Friday July 01, 2016.
USDA report was released at 11 am. There are a lot of headlines but in the end I don’t think a lot changed. I’m going to lay it out from the fundamental side below, I asked Brian Cullen to help with his thoughts on the technical outlook, presented below. He’s going to join us daily to give us one chart we follow along, each day of the week. You can get his technical thoughts on future price action in THE CULLEN OUTLOOK. If you want to learn about how to look at a chart, he can help. Let’s get to the headlines.
1. FARMER PLANTS CORN – Farmers love to plant corn. In the back of my mind I always was thinking if given the chance (weather lowed this year) and prices were good (bean corn ratio was still in the 2.4 range) they were chasing the #2 yellow. That is what happened. 94.1 million acres of US soil will be covered in corn. The highest guess out there was 94 million. It surprised everyone in the trade EXCEPT, the satellites at Lanworth who said it yesterday would come out this way.
So where do we go from here…I was arguing with Tom Dosdall after the number about the spec open interest. I made the case the last 40 cents of this selloff has swallowed the spec position as option strikes go into the money last Friday, taking the net position from a long 224 k down to closer to 0. His case was that the run-up, saw Dec bottom from 365 at the beginning of March (the day of the first planting report) with a net position of -200,000 and rally all the way up to 4.45 with a spec long position of near 275,000. Looking at things a little deeper I wonder if I’m wrong. The short term charts show a double bottom at 365 Dec in place. The question I have and will be somewhat answered in the COT report tonite is, what is the spec position now? If the spec net position remains above 100 k, I will have a tough time wanting to roll puts down or even take a shot on the long side. If its closer to 0, I would look to roll the puts down or look to take some long delta exposure in corn. Remember, Brazil story remains the same. Yes, we have a big carryout but we might be THE corn shop for the world over the next 6 months. Based off the way DEC-DEC traded yesterday (yay) I have to think the managed money is getting closer to 0 than 100 k long, but we will see tonight. In the meantime I would stay short.
2. SOYBEANS HAVE A BI-POLAR MOMENT – Nothing really changed in the bean markets from yesterday’s report. The acreage wasn’t as high as it was expected to be but it did see a hike nonetheless. We also got a 40 million bushel bump above expectations in current stocks. So at trend yields, were probably looking at a carryout jump of 80-100 million when its all said and done with new crop. But did anyone notice the algo price action on the release? 10 lower at 11 am then a “wooosh” through 10.50 and up to 10.80. The buzz saw was in full force yesterday. Bean OI remains near record long, which is why I stay away from the long side. But I don’t have a death wish either so Ill avoid the shorts. I really like Turner’s Take bean spread of Buying X16 beans and Selling K17 beans.
3. WHEAT FOR SALE – The report was a non event for wheat, the specs are RECORD short in KC and CHI and someone out west in Nebraska is offering wheat for below 3.00(!) when considering the cash basis. The year ending stocks for all wheat is going to be larger than 1.2 billion for the first time since 1987. That was when we planted 65 million acres of winter wheat, this year we only planted 36 million. Something has to break at some point for the wheat farmer but apparently its not today. I’m bullish KC wheat at these levels but it’s not easy.
4. COTTON ACREAGE DISAPPOINTS – Total acreage for cotton came in up 17% from last year at 10 million acres. A lot were thinking we were going to see closer to 9.4 million. This is disappointing for the longs and there are plenty of specs to the long side who may clear out on this news. I would be selling cotton on pushes above 65. Barring any crop problems, our supply could deepen going into next year. Quality will remain a concern but overall supply/demand dynamics remain Chinese driven, who apparently have no appetite to increase stocks. Stay aggressive to the short side.
5. MOUTHS NEEDED FOR FEED – So how do we rid ourselves of all of this wheat and corn out west? We feed it. Right now we need more cattle to feed it to, as consumption of cattle remain high and numbers historically low. I expect to see some feeder cattle followthru on this, probably some deferred hog follow thru as well. I hear 200+ dressed cattle traded yesterday, up about 12 dollars from last week. I remain long Nov feeder calls along with the August calls Kirk has going on.
CULLEN OUTLOOK CHART OF THE DAY
I mentioned above that Cullen is going to pitch in with the technical outlook for TWIG. Every day we will get a new chart. Friday is going to be Corn day! Monday will be soybeans, Tuesday KC wheat, Wednesday Cotton and Thursday Feeder Cattle. Hopefully we can combine his tech outlook with my fundamental outlook to get a better view on things for you.
Looking at a monthly chart of CORN, you can see over the past 9 years, the corn market is comfortable between 3.50 and 4.20
When it gets above the 4.20 level, the market gets very volatile with big, accelerated moves
We are approaching a major trendline that began in 2006 (in red)
I like the idea of buying on this trendline looking for additional support at near 3.50 front month.
If this trendline does not hold, you can look for another level of support to come in at the 3.10 level (in orange)
Understand that a 40 cent move at these levels, is a +10% move.
We have already declined by 12% off the 4.20 level (50 cents) 4.20 – 0.50 = 3.70
If we bounce, you can expect major resistance to be applied at 4.20 to keep the channel in tact
If fundamentals change (weather or planting related), look for the inside trendline of 4.80 to come into play (in grey).
The 100 day moving average is noted in green
Over the summer months this year, I look forward to trading the range inside of this channel highlighted in yellow.
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