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GRAINS | September is seasonally a month of harvest pressure weighing on corn, wheat and soybeans. If you look at a seasonal chart you start to see winter wheat making seasonal lows in mid-September and then corn and soybeans by the end of the month. I think may have already put in the seasonal lows.
Corn has a big short position, the crop is getting smaller, and exports are stronger. If we can close above $3.45 I think we can see a nice post-harvest rally in October. If yields are closer to 170 and exports remain strong, new crop carryout might only be around 2.0 billion bushels. While that is a lot of corn, you can get to $4.00 with a 2.0 billion new crop carryout combined with strong export demand and South American weather issues later this fall. Right now the corn market is still bearish but keep an eye on that $3.45 level. A break out above there could start a whole new round of short covering. Also keep an eye on Dec16/Dec17 corn. At -40 cents (40 cent carry) maybe there is only 15 cents for risk to the downside and the upside could be significant if we do see continue strength in demand, lower yields in the US, and South American planting issues.
CATTLE | Cash cattle traded $5 higher last week in the Plains and traders are making the case we put in a seasonal low when Oct Live Cattle trades just under $100. I think we could chop around as the wholesale market needs to see strength and packers have struggled to move beef. The most encouraging sign for me is that the trade has brought a lot of excess cattle to market, and that means we are less likely to have a back log of cattle later this fall and into the winter. I think there is a lot of value in Oct and Dec cattle at these prices.
December Live Cattle
CRUDE OIL | Venezuela made news saying they could announce a deal to limit crude oil production but OPEC seems to have played down that possibility. The fact is OPEC will have a difficult time reducing production if Saudi Arabia and Russia are not on board. In the old days OPEC was able to cut back on supply because Saudi Arabia took it upon themselves to limit their own supply and let the rest of OPEC to continue to pump. Saudi Arabia has lost too much market share and they don’t want to play that game anymore. So now you have a situation where everyone says that OPEC should cut production but none of the members want their own country to cut production. Another factor that has changed is in the past other non-OPEC nations were not able to make up for OPEC production cuts. That is not the case anymore. If crude goes too high there are non-OPEC entities that can come into the market and take market share at lower prices.
I see crude trading in a range between $35 and $50 for the rest of the year. This time of year is seasonably good for bear spreads and anyone reading the Turner’s Take Market Alert email has seen my thoughts on Jan vs April Crude. I continue to like bearish positions in crude oil based on current fundamentals, technicals, and seasonality.
October Crude Oil
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