This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Thursday September 8, 2016.
Corn and wheat are slightly higher in overnight trading this Thursday morning, while soybeans continue their positive week/month with another push toward 10.00. News flow this morning is going to be driven by the outside markets after the ECB announced they would continue QE through March 2017 at the earliest. This is bullish the USD in the short term as the Euro will fall, but it could turn out to be bearish the USD and bullish commodities longer term as the lower the ECB sets rates (currently negative) the harder it will be for the US FOMC to raise rates here. Gold and silver are up 30% for the year, I think this is a good harbinger for things to come in the commodity space. Keep in mind the time table for this could be 1-2 years. Economic law should dictate that as supply of a good remains constant and money supply goes higher, that prices should eventually go up. This is the central bank argument, so far they haven’t had much luck in inspiring inflation anywhere, but I think it’s coming which is why I like buying wheat at these levels.
Corn continues its price march as the fund position remains very, very short. The market’s issue ahead of next week’s WASDE is whether the USDA confirms a yield near 175. If we do not, then we see new crop end stocks falling albeit slightly. This should be good enough to confirm a harvest low. You have to think the USDA also brings Brazil production down which would be helpful for world carryout cuts. If you want to play the weak seasonal through September, take a look at the OCT puts on Dec futures. I like buying them so I can have the confidence to get long on a break. I look for potential rallies to stall out in the 350-360 area, if the USDA would drop yield for some reason.
Wheat is being dragged higher by the corn markets. Short covering on low volume is being observed everywhere, wheat has been no different. The managed money is still really shorts in corn and wheat, these rallies on low volume tell me weak hands are moving toward the exit. I’m bullish because quality has not improved in Europe and quality is being more hotly debated in the Black Sea, and huge yields in Canada and likely Australia may result in less than desired protein levels. Russia’s 11.5 pro contract remains the cheapest in the world at 135 per MT FOB. Until that moves higher, wheat is probably stuck below summer highs. Export sales will be monitored to see if there’s any response to the recent plunge in US fob offers, but we won’t see those until tomorrow.
Any hope the soybeans have to rallying back above 10.00 will depend on the weather forecasts over the next few weeks and the USDA outlook on yield come Monday. My satellite guys are still near 51, based off this and the USDA crop progress numbers I think we will see yields come in above 50 at least, but if they want to take the tact they took in corn a few weeks back, they may raise higher than that. I remain skeptical of any short term rallies here as I don’t know who is going to be buying these levels from the spec long and the farmer once the harvest gets going. I look for a test of the 4- hour resistance near 10.00 but I would be looking at short term put options at those levels to protect what is coming off the combine. If anyone has any questions on strategies in beans, give me a call.
December cotton is trading just below 70.00, a two week high but down from yesterdays close. China’s market appears to be softening a bit. You know my thoughts if you have been reading for a while. The only thing that makes this rally from here is crop loss. The specs are long and the crop conditions are average, a push back into the mid 70’s will depend on the crop in and around Lubbock, Texas over the next few weeks. USDA crop progress has been essentially sideways since the last WASDE, I wouldn’t bet on any yield drop especially with the funds already betting that way.
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