Happy Friday friends!
Check out the podcast/audio at the bottom. I review the COT reports there.
Here are the results for the week:
January soybeans will take over the top step on Monday.
November options expired on a positive note for corn, beans and wheat while cotton saw some bloodshed as a new round of options expire in the money. Be aware of pin risk if you own strikes at the 980 level in Dec, the 350 strike in Corn, the 415 strike in Chi Wheat, the 420 strike in KC wheat and the 6920 strike in cotton. You can be exercised into a futures position if you are short and not in the money, be warned. January soybeans will take over the top step on Monday.
The news of the day was new crop planted acreage (2017) expectations from the folks at Informa. Let me first say that everyone was WAY off last year, thinking farmers would plant 88-90 million acres of corn when we ended up near 94. It looks like they are right in line with expectations from a year ago:
They pegged 17/18 corn planted acreage at 91.0 Mil, vs. 94.5 Mil in 2016. Soybean acreage is guessed at 88.5 Mil, vs. 83.7 Mil in 2016 (new record).If this would hold I find it somewhat bullish corn and really bearish beans. Another 4-5 million acres of soy will add another 200 million to carryout from this year. I think we can expect deterioration of soybean carryout as 2017 goes on, but I think we could see 500+million carryout in the next growing year. Corn on the other hand has a trend yield at these prices keeping the carryout constant. I wish I could believe we will see 3.5 million less corn acres, I am skeptical. That said, I would be a buyer here of corn. US corn has a long way to go before it would face export competition from Argentina, even further for Brazil. Remain long, buy breaks.
Winter wheat acreage are pegged at 35.4 Mil, vs. 36.1 Mil in 2016, with total acreage pegged at 48 million. This would be a near record if we plant this many. If we yield like we did last year then wheat production probably doesn’t fall much but I think its a stretch to assume the KC yields will be as good as the last two years with less moisture expected, I expect demand to increase as well so dont fall in love with carryout levels for next year yet. I think the trade has factored in these good yields, I remain a buyer. Here is a look at total winter wheat acres going back to 1970 and yields vs trend. I would bet carryout tops this year for the next decade at least. I’m betting on it.
Were hearing more reports of deteriorating soybean basis. Today it is steady to weaker, while corn is stable. Cash corn bids in central IL are at $.11 over, vs. $.03 over a week ago. Central IL soybean basis today rests at $.20 under, vs. $.15 under a week ago. Farmers are clearly storing corn and selling beans in the bulk of the soybean/corn belt. It is much more efficient to sell beans than corn as they fetch 3 times the revenue with 1/3 the time spent moving them to the elevator. Nov-Jan bean spreads went off today at 9 under, something we have not seen in a while.
Cotton had fantastic demand from the USDA exports yesterday and some friendly news out of China that supports demand, yet the market falls 2 cents to end the week near 69 from the 71 where it traded yesterday morning. Cotton remains very susceptible to risk covering, which is why I would stay short. I was not able to find an Informa take on 2017 acreage but I would assume it jumped above 11 million and could be closer to 12 million before its all said and done.
I remain bullish of corn and wheat, although my audio on COTwill explain why I am cautious here compared to where I was last week. I am bearish of soybeans in new crop 2017. If we have carryout problems due to a problem in the southern hemisphere the front months will take the bulk of the rally. 88 million soybean acres is insane. You can get 988 board today, take it for a small chunk. I remain bearish of cotton as well but there is a technical floor out there near 67 that has held for months. Betting on a break of the low next week is not one I want to make. Stay short or look at a covered put strategy. Call with questions.
Thanks for following along this week. Go Cubs Go.
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