This Week in Grain – 7/05

This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Tuesday July 05, 2016.

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I hope everyone had a happy and safe 4th of July, welcome back to a holiday shortened week. How many of you logged on last night to see corn unchanged all night? Yep, you got fooled. The grain markets don’t open until 8:30 in the morning! It’s amazing folks were able to manage risk without the overnight trade (sarcasm).

We will open shortly to what many feel will be negativity after a fantastic round of rains this weekend over the parched southern growing regions while temperatures up north remained on the cool side. Weather forecasts for pollination are trickling out and were getting our first views of what the middle of July will look like. See below, while its warm the precipitation chances remain high so I would not be preparing for some weather based ramp in corn.

For this week, I’ll be very interested to see how the near record short position in wheat and longer than expected position in corn treat the spreads between the two crops. Flat price corn traders need to see corn hold the post grain stocks release lows near 365 Dec while the September contract for KC wheat makes a run at 4.00. I am a buyer of wheat at these levels, while I would be aggressively selling corn on rallies. Especially with the 6-10 day posted by NOAA. For this week, because of the holiday we will have a one day delay on all government reports. There will be more British Pound ripples across all markets as well as an FOMC minutes release on Wednesday. Friday we get US employment data. The next major grain report comes out one week from today, July WASDE on the 12th. We will get a first look at yield in those reports.

In the cattle markets, we heard reports late last week of 200+ dressed cattle trading again as the cutouts fall toward 200 dollars in the choice cutout market. Cash cattle are beginning to trade week to week in larger trading price blocks. There is very little support for the value of a fed steer to change from $116 the previous week to $123 in the current week. The reason for the volatility is simple — poor liquidity amidst a grain price selloff. We are discovering price for a small pool of cattle, generally less than 10% of total fed cattle production in a week, and anytime you trade a restricted amount of transactions in a much larger market, the natural bi-product is volatility. The cash price for cattle is determined by those 10% for the other 90% and the CME has built a futures product off that subset of a market. Discovery right now is difficult but the fundamentals remain sideways, which is better than some other markets we know. Going forward, I expect more speculative interest in feeder cattle to pop into the story. Cheap grain prices will encourage usage and based off wheat, I think corn and eventually soymeal will give livestock producers wider margins to expand.

Thanks again to the CULLEN OUTLOOK for preparing Monday’s chart of the day, SOYBEANS! You can see his comments below on this long term monthly outlook. Ive also included the managed money net OI chart so you can see the swings. Soybeans are a tough trade right now, I would probably be a buyer of breaks rather than a seller but the high net OI to the long side probably calls for some hedging up here.

4 points to make on why Soybeans will struggle with the 1200’0 level:

1. Off of this most recent move lower, the 50% retracement (see blue highlight) comes in at 1200’0.
2. The down trendline (in red) that uses the highs in 2012 the highs in 2014 will provide some resistance at 1200’0.
3. Have a look at the MACD on the bottom of the chart-
   • In the past, when we have seen extreme moves higher the oscillator (in orange) has topped out at or near the 50.00 point horizon line (in green). With this sharp spike higher in June, we will be testing that line as the market begins summer trading, trades post 4th of July.
4. The 50-day Moving Average (in purple) comes in at 1207’0.

This is a continuous front month chart for Soybeans and on this chart front month August is trading at 1165’0

November in comparison is trading at 1140’0 as of this writing. So targeting 1175’0 seems about right.

THANKS TO THE CULLEN OUTLOOK. HAVE A GREAT WEEK!

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