This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Tuesday August 16, 2016.
Good morning friends
Bearish markets don’t usually move up on bearish data. That’s the price action we have seen post Friday’s USDA report in corn and soybeans. The markets may face a small challenge today as the crop progress from yesterday showed unchanged across the board in corn, beans and cotton. While many are disputing the USDA numbers from Friday, it would probably be foolish to assume yield reductions are on the horizon if the USDA is going to keep conditions chugging sideways.
One thing I am considering moving forward is subscribing to a satellite service to help me track the yields from the sky. You are going to start to see these services pop up here and there. There has been a new one released recently called KERNEL, established by a company named Tellus Labs. These are folks out of Boston using NASA imagery along with the data from NOAA. You can learn more about it in this article. Below is an image from their latest yield forecast that they update weekly. Currently they sit at 169.6. I will be interested in following this over the next few months and seeing how correlated they are with USDA. Bullish corn traders hope they see 169 rather than 175.
Soybean markets are on the move after the bumper projections from Friday, moving much higher in yesterday’s trade. Soybean oil is the driving force of late, with yesterday’s stocks report showing a decline behind a record crush projected for this year. Record crush and record exports? That must be why the funds have hesitated to sell soybeans. Friday’s OI report showed another net spec position contraction, but that was from longs exiting. Fresh shorts have not come in droves. Soybeans are very attractive at these levels long term, but in the short run the question I have is whether or not the yields will keep going higher. Shorter term, the Nov soybean contract poked its head above the 100 period EMA on my 4 hour charts for the first time since mid-July. From that point prices fell from 11.20 to the mid 9’s. I would be careful getting long here, I’m a dip buyer.
Wheat markets are doing as wheat markets have been doing for weeks, a sideways chop. The report on Friday didn’t give the bulls what they were looking for regarding Europe or South American wheat prospects. I remain bullish wheat in the longer term, waiting on a late Q3 breakout in July as new crop acreage needs to be attained. Take a look at this 4 hour chart in July. Its been in a 30 cent range over the last 45 days with the 4 hour 100 period EMA representing the lid on prices. The record large spec position has me wanting to be long the board in July, hedging length as we get toward the EMA.
The cotton position from last Tuesday remained record long. I assume the spec position has been paired substantially over the last week as prices have fallen from 71 where they were when the COT was measured. I would like to see where the spec position is now, before making any major judgments but assuming it’s still rather long I think there is more downside to go. Cotton bulls will hope the uptrend holds prices up here, but I’m not optimistic. Production wasn’t that disappointing in the WASDE report and if conditions aren’t going to deteriorate, the oilseed is probably too expensive for 68 cents delivery.
The rest of the week’s news flow will be slow in the ags up until the end of week as we will get Cattle on Feed and other livestock data. FOMC minutes will be released on Wednesday afternoon, but little change is expected from the meetings in the past. I would expect the currency markets to pick up the price action as we get out of August. Just a reminder the FOMC was projecting 4 rate hikes this year, so far we are still waiting on one. The Dollar index in the 95-100 range will keep commodity prices at bay, but don’t think we can’t see a move lower in the DX if the Fed points to continued low interest rates.
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