This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Monday August 08, 2016.
Before we start for the week, I want to thank everyone for the kind well wishes after the birth of my second child last week. John Wolf Payne was born last Monday at 7 lbs 5 oz. Everyone is healthy and had a good first week. I’m excited to be back in the saddle again.
I sporadically checked on the markets last week and I can’t say I was surprised with the price action in corn or beans, but I was disappointed for the bulls. I feel the markets are in a bottoming process right now but tests of major support in corn and soybeans shouldn’t surprise ahead of WASDE this week. The USDA will give us their newest take on crop production on FRIDAY, August 12. Much like the last few years, this is heavily anticipated as the trade is interested to see how the yields change given the fantastic crop progress numbers in corn and soybeans. We’re entering a window for corn where there will be a lot of product that needs to clear ahead of harvest, so prices may stay weak through the Sep delivery.
CORN: Other than WASDE on Friday, as a corn bull I am very, very interested to see where CONAB puts their Corn numbers after a drastic reduction last month. CONAB will release numbers on Tuesday morning, early. The USDA has Brazilian corn production at 70 MMT (July WASDE), CONAB in July came out with a 65 MMT number. If small crops get smaller, then we could be looking at another reduction. Some are thinking another 3-5 MMT gets cut out, which would bring Brazilian stocks to use to negative territory. COT numbers from Friday (as of last Tues) put the managed money net corn short near 100 k contracts. I have a hard time trading under the expectation the hedge funds will be short corn in low 3’s front month and the mid 3’s for July next year.
SOYBEANS: The soybeans don’t have the SAM story that corn does, in regards to yields that are being paired back. But they do have a demand story. “Unknown” has been very busy in the export markets of late, some think that because of the large weekly export totals since July, the USDA could need to adjust export demand 50-80 million bushels higher. That could cut the carryout for 2016-17 from the high 2’s to the low 2’s, depending on yield. The soybean markets have been pulled lower by fund liquidation in recent weeks, which has resulted in tests of the 200 day MA. One thing I have noticed in soybeans though, the liquidation is coming from the long side and not from fresh short sellers, like we have seen in corn and wheat. That is good, because it shows the funds don’t care to take risk and sell down here like they did in Q1, but it’s bad because that potential still exists. I am bullish soybeans at these levels but I would not be as aggressive as corn or wheat.
WHEAT: Were getting hard data for exports in June, and we saw the highest totals since 2013. It’s nice to see low prices starting to cure. In Brazil, were hearing they are looking to waive a tariff on wheat imports from continents other than South America. Green shoots are being seen in Russia as well as interior Russian Wheat prices are climbing off lows. With managed money shorting contracts to the max (COT showed net short just above record), I think a low is at hand in wheat prices, especially the July 17 contract. Wheat markets got good news over the weekend from the GMO issue that haunted the market a week or so ago. Tests of wheat in PNW have come out negative across the board. I don’t envision the USDA giving much bullish news in this report but I think the negative news flow should be done for a while.
COTTON: I saw the USDA dropped conditions again last Monday, the trade will be nervous ahead of today’s report and the WASDE at the end of the week. I have been saying for weeks that the spec long in cotton is basically tapped out but the commercials had the potential to push price if yield wouldn’t play out. Well, according to the USDA, yields are not playing out to trend. Cotton OI is now near record long. All the while, the Chinese are playing the long game, liquidating massive domestic stockpiles on this rally. China will sell state-owned cotton reserves through September, a month beyond its original intentions, as demand to buy the cotton is high, according to a joint statement from the National Development and Reform Commission and the Ministry of Finance. The statement also said the total amount of cotton auctioned could exceed the 2 MMT originally slated for sale. China has already sold 1.7 MMT of cotton reserves. The best thing shorts can do now in my opinion is cover hedges with call options through the short term. If crop conditions continue to fall, then the spec position is probably warranted. If you think the conditions are going to stabilize, then I would short a push toward 80 and hedge 2017 production as well.
CATTLE: This is from Kirk Donsbach’s, Cattleman’s Advisory, I have been out of the cattle loop and I need a tag team partner this morning. Here are his thoughts:
Cash sales took place between 118 early in Texas and Kansas, to 120$ late in Colorado. That puts cash 2.5$ over August futures and 5$ over October futures. It will be interesting to see if the Futures market is willing to bet cash is going to continue to improve, or that it simply was not willing to bet that cash was going to continue to weaken. The narrowing basis suggests it is at least the later. The week ending July 23rd showed carcass weights holding at 880#, 4# below last year’s weights.
August Live had a great week. Technically the chart looks great, but it is also evident that August live has a lot of resistance stacked above the market. Starting with 119 and 120. Closing above the trend line around 117 and the 50 day Moving Average was a good start. Quite honestly, this is where the technical indicators abandon me. I need more information to determine if a solid up trend can be developed, or the market simply wasn’t comfortable with the historically large negative basis. I do know that Put options seem like an awful good idea right here, and hope they are a waste of money.
Feeder Cattle have very little seasonal upside left to them. Feeders are moving counter seasonal. It is unknown if feeders will continue counter seasonally as that indicator turns negative this month (rally when they normally decline). I am more skeptical of the rally in feeders as the buyers of feeder cattle have not recouped their losses from past purchases. That is not the case in Live cattle as Packers have been profitable for some time now.
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