This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Monday July 11, 2016.
Welcome to mid-July and the start of the doldrums of the grain trading season. The market is always involved in some sort of distraction from the minutia of what really matters. Right now those distractions are macro related (Europe). But what really matters to the fundamentals is going on in the fields over the 6-8 weeks while we pollinate corn and set pods for soybeans, along with the crop situation in South America where new supplies appear to be short relative to demand. Those are the stories that matter for this week.
The schedule this week is dominated by new data releases. WASDE will cap off a monster month of data going back to the June WASDE. We get our first look at yield tomorrow, even though the USDA seldom gives drastic changes from trend yield (especially upside) this early in the year. Now that we have the acreage number on one side of the ledger, the two levers the USDA can pull will be supply (yield changes to US and foreign crops) and demand increases from higher export pace and lack of competition. It’s the demand side where I think the trade could be surprised. I assume the market has priced in the yield side of the equation, at least partially. I don’t think we would be seeing Dec corn trading sub 3.70 in July if the crop weren’t assumed to be plenty large.
Soybeans appear to be marching into a weather market. The models look to be turning hot and dry as soybeans step to the podium in late July and August. This could be a big deal for soybeans as the spec long (see my CFTC report) is pretty much tapped out to the long side, what we need to see is commercials now get involved to the long side and buy back some production that may not exist in a few weeks. Bean traders have a lot to pay attention to over the next week or so as the dome moves in over the central Midwest.
US wheat export sales continue to beat the street. Buyers continue to source US wheat at multi-year low prices, and briefly last week FOB SRW was offered at parity with FOB corn. Total 16/17 export commitments come in just north of 300 Mil Bu, 35% ahead of the US expectation forecast. I expect the US to increase demand in coming months. The USDA is expected to raise world production & stocks next Tuesday to offset some of this demand but with the spec record short, I am a buyer. I think a seasonal bottom in futures is in, but rallies thereafter will struggle because of weak global cash markets and tepid demand from major importers. I look to buy breaks toward 4.00 and sell rallies toward 5.00.
Cattle futures continue their two steps forward, one step back as prices come off lows but give back gains on any risk on rally in grain markets. Cash was traded north of 120 again last week which is very supportive going forward. Many guys I follow believe the cutout has bottomed as well. We made a run below 200 last week in the box beef cutout early last week but rebounded into the close of the trade. The dressed cattle trade isn’t going as swimmingly with packers playing hardball, some think they will drop bids this week into the low 190’s vs the 196 paid last week. Cattle is a secondary market in the eyes on the funds right now, COT numbers remain very low historically when looking at who’s involved from the spec side. This reflects the lack of bullish story, but also presents a lot of opportunity for those willing to buy in a scary time. USDA data for cattle comes out next week.
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