Good morning friends!
Corn 342’0 (-1’2)
Soybeans 955’2 (+’6)
Chi Wheat 402’4 (-1’4)
KC Wheat 404’6 (-2’2)
Cotton 67.73 (+.37)
Markets are quiet and should remain quiet up until the WASDE announcement at 11 am. As I’ve said before, this report should affect the soy complex more than the corn or wheat, unless we get a bullish surprise in one of those markets. That said, the trade is very aware of both the tendency for yields to go up, and the conditions of this crop. But one thing I am learning by going through the data, is that if they come up in this report they are likely to raise again before its all said and done. Going back to 2003, we have only seen 1 decrease (2010). IN every other year, we have seen an adjustment higher by the end of the year by anywhere between .2 bpa to 2 bpa. The years we saw the highest increases was 2005, 2009 and 2012. Last year we saw a .8 bpa increase. Because of this, I would be ready to sell a move lower in price. I expect the number to come in somewhere around 52 bpa, but I would be prepared for it to go to 53 by the end of the year if conditions do not change. On 83 million acres, a 1 bpa jump takes stocks to use above more comfortable levels. Throw in the idea the funds are not short soybeans on a major level and the farmer waiting to sell, I think we could see some damage in price if the report shows ample supply in the field.
Tonight we will get the crop progress report from USDA that we normally get on Mondays. I think we see harvest progressing near 45% complete. This is normally the area in the harvest pace where the farmer selling in corn hits a nadir, but in years like this we could see it pushed out as a lot of producers will delay price with current reward below the cost of production. I look for harvest pressure to affect soybeans more than corn this year, with pressure in corn coming during times of the year when supplies need to be used for financing (early 2017).
Wheat is susceptible to short covering like we saw yesterday, with 255 k short specs in the Chicago side. The problem with wheat is the cost to carry. The curve is so steep, its really making it a difficult hold but I remain optimistic at these prices. Ag resource calculates that Russian interior prices are near $170 per MT vs the port offers near $173. The evidence they present (see below) has me encouraged for wheat in both Russian prices bottoming and Indian milling wheat prices rallying.
I am hearing Cotton growing areas appear to have sustained some damage in NC during Hurricane Matthew, but traders I talk to say that damage should be minimal. The story out of India continues to support but I have a hard time seeing any buying of US supplies coming from it in the short run. US carryout looks poised to close the year at 8 year highs. I remain short cotton. If you are short futures and would like to cover some risk, buy back the short futures and use put options as replacement. I would rather be short futures but I understand the nervousness that comes from 67 cents looking like a cement floor.
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