Good morning friends!
Corn 349’0 -‘2
Soybeans 1054’2 +8’2
Chi Wheat 391’6 -4’6
KC Wheat 409’6 -1’4
Cotton (H17) 71.42 +.17
The holiday shortened week from last week is behind us and we start the first week of the last quarter of 2016 with a lot of fanfare when it comes to the macro markets. We get heavy news flow coming in hot on a daily basis starting with a pair of speeches by ECB chair Mario Draghi today. Tuesday we get US GDP, Wednesday is the OPEC meeting, Thursday we get USDA exports and Friday we get US jobs numbers. All of this comes ahead of the USDA WASDE report that will drop on Friday the 9th and the US FOMC rate hike announcement on December 16. Needless to say that the price action we have seen since the Trump election has been fairly one sided in the case of cotton and soybeans. If you have read my newsletter in the past you are aware of my theory that trend changes typically come around big market events like the one discussed earlier and the end of quarters. We have both on the distant horizon.
January soybean futures rose to $10.65 in the middle of the night testing the 50% re-tracement of the front month summer sell off. The price action from last night screams capitulation but I am hesitant to call a top. I’m hedged on soybeans around 10.00 November that is getting hot, if you are nervous about new crop beans then I would roll the hedges into shorter dated March new crop options that will protect you through crop insurance time. Malaysian palmoil also soared to new rally highs with January futures up 49 ringgits at $3,087 overnight – a new 4 year high. The spec open interest (we will learn today the latest numbers) has to be pushing on the 150-175 k level, which is as heavilly spec bought as we have seen in some time. Funds have piled into nearly 80,000 contracts of new length in soybeans in the past 4 days that has rallied prices nearly $.80/Bu. This rally is unsustainable unless the bean meal market comes along for the party and crush incentives improve drastically.
Wheat is getting pounded into the delivery period, as we expected. Now is the time to step into the wheat markets if you are inclined. The December delivery period looks to put tremendous stress on those holding physical wheat, just like we saw in September. First notice day is this week, so if you do want to re-own get with me around that date. KC vs Chi spreads have blown out in my absence. Roll Dec positions into March if you want to remain long the Dec over the KC, higher protein will remain on bid.
Corn remains torn between the upside move in soybeans and the bottomless pit that is the wheat (feed wheat) markets. Until wheat goes, I would remain covered if you are short. Look to buy back hedges or get long on breaks in early December. OPEC will have some sway over the ethanol market this week, that should move corn with the rest of the energy complex. Like I mentioned above, wheat is the anchor on corn prices right now. The feed component of corn is going to have a difficult time getting bid up with feed wheat cheaper almost everywhere. Eventually the story will change in wheat but it probably comes in Q1 of 2017. Stay patient with corn and play the seasonal that calls for bottoming corn prices sometime in early December. If you do need to move prices before December contracts expire, I would recommend re-owning using May or July to do so.
Cotton charts are rollingover and looking to retest the trend line that comes in the upper 60 cent range. The curve is inverted right now with December 16 leading March 17 and then December 17 futures. I have been reading that traders expect a slow down in demand over the near term. Currently, exports are lagging 5 year averages with 60% of USDA export totals hit vs the average of 63%. The bottom line is that the Texas crop has done really well late into the season, hopefully the boys and girls in and around Lubbock were able to get a break in harvest activities last week. The late harvest and currency factors have pushed cotton prices above 70 cents, Cotton will need a new impetus to keep the buyers in the market with conditions back near historically high when it comes to open interest. I look for the trends to hold on sell offs for the short term, there is a bullish MRCI seasonal trade that started Friday and lasts through Christmas. See below.
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