This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Monday July 18, 2016.
Thanks for joining me this week as me again with the tackle what’s coming down the pipeline in the grain markets and try to get a handle on with this heat is going to do to the market over the coming weeks. In my opinion, the hardest thing about trading a weather market is trying to figure out what is priced in and what isn’t.
THE BULLISH WEATHER PICTURE
THE BEARISH WEATHER PICTURE
If you read the newsletter on Friday concerning the COT data, you saw the corn speculation to the long side has been neutralized in recent weeks as longs run away from what is perceived as a “monster crop”. Eaten at the net position of the speculator since March 1 has gone from net’ short 170000 contracts to by the middle of June so the speculator net long 300000 contracts. As of last Tuesday, the net speculative position was essentially flat. So really, were back to square one. Historically this is a fantastic set up to buy into, but the idea that this crap is getting larger and larger by the week is creating a very difficult buying certain scenario for myself in corn. Corn is past pollination, the weather market should really be more focused on the beans. I think it’s somewhat safe to assume the train yield for court at this point, or essentially guessing with USDA going to see as final yields. This makes trading very difficult in the short term, but the long term looks pretty good for corn, considering the situation in Brazil.
Soybeans are the one market that could be extremely volatile this week. In fact I think it’s probably better to assume massive volatility then be taken by surprise. Much like corn the net speculative position has paired substantially in recent weeks, but unlike corn, the net position remains rather large and the downside remains rather open to the intraday flush as specs run from changes in weather models. I would maintain the stance of buying breaks because it will be very difficult to justify November futures below 1020 unless we can really confirm trend line yields are being realized, which won’t be for a while. The heat we will see this week hits beans at the worst time, but it’s being accompanied by rain which can neutralize a lot of the heat. I don’t look for soybean crop conditions to deteriorate on this weather event.
Wheat maintains it sideways trading stance at these low prices. Chicago eat net speculative open interest position is now a record short, I recommend taking chances on the long side on any breaks as it some point we should see the speculative with the short story that is supported for wheat prices. In my opinion it’s all about timing. I expect a jump on prices soon but A fundamental rally can’t happen until the Russian cash market can find a bottom. We will be looking for that in coming months/weeks as harvest wraps there. If I was analyzing the market based soley off open interest, wheat is a buy here.
Cotton is almost in the exact opposite position of wheat right now. The crop conditions are average, foreign markets are beginning to heat up, and the net speculative position is near record long. In a vacuum I would be looking to sell this market as soon as possible, but the story out of India concerns me in the world supplies aren’t as big as the paper likes to make them sound. I would like to think prices hold here in the mid-70s, but I’m not ruling out a push into the 80s for the front months. The market is inverted now with 2016 contracts trading over 2017. I advise producers to look at hedges for 2017 production but speak with an advisor first as options are not available and you need to be creative.
Cattle markets look to open the week a little higher as the feed markets trade lower into the morning session. The sideways gyrations of the cattle markets within a 10 dollar range are causing the trend follower’s fits. With a spec position near zero, I look for cattle price breaks to hold. Box beef cutout was up 205.37 on Friday down almost 28.00 from a year ago. According to Drovers, cattle feeders continue to find small margins despite a year over year decline in fat cattle prices. A month ago cattle feeders were earning $32 per head, while a year ago losses were calculated at $11 per head, according to Sterling Marketing. Feeder cattle represent 72% of the cost of finishing a steer, compared to 77% last year. All of this spells poor news for those like me who are betting on a rebound in the feeder cattle price in the short run. The good news, per COT report on Friday is that much of this is baked in and speculators have a lot of potential to push the market if given the chance.
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