Good morning friends!
Corn 345’6 -2’6
Soybeans 1041’4 -14’4
Chi Wheat 385’2 -4’2
KC Wheat 405’2 -6’2
Cotton (H17) 71.19 -.83
Markets are lower across the board at the CBOT and ICE cotton markets as news flow is lacking bullish news. Crude oil is leading the way ahead of an OPEC meeting that has the feeling of train wreck type outcome. All we have heard from OPEC rumor mills over the last two months has been talk about coordinated production cuts. Those rumors have dissipated as the leaks now indicate nothing will happen at the meeting on Wednesday.
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Given the spike in speculative open interest we saw in the latest CFTC report, you have to think some of the longs added from the trump rally could add some volatility to the downside of stops are triggered. Keep your eyes on the 1042 level in Jan beans (low from yesterday, we haven’t seen a previous day’s low broken in soybeans since the 17th. (As I am writing this letter, beans just broke 1042)
As I mentioned in yesterday afternoon’s letter, Cotton longs have spike back to record in the spec category. The market has to look to down shift a little to get more fuel to the upside. Commercial buying is a priority with a lot of the cotton still in the fields in biggest producer state of Texas, but that will be out in a few weeks. Currently, the inverse between March and December cotton sits at 1.37, up dramatically over the last week but off its recent highs. The fact remains that there is little production risk left to push price, the profit margins for 2017 cotton look fantastic relative to other row crops and the spec side of the trade is record long. I do not see this ending well. If it weren’t for the price gaps above and the 15/15 seasonal in May cotton (long through Christmas), I would be shorting aggressively in 2017 right now. I still recommend having hedges in place but I would be patient on 2017. I still think 73 cents is in the cards at some point, but it might not happen soon.
Wheat is needing some good news and little can be found other than the fantastic price action in the Spring wheat contracts (5 months highs). Protein is going to be king over the next few months if the crop conditions remain high. Speaking of conditions, they were left unchanged again last night which is baffling. Kansas GE ratings are near 52%, all while the drought monitor looks like it does right now. Right now Western Kansas and the entire SE south of the Ohio river is listed in drought. Once we get into December and the first notice day excitement is behind us, I will be getting long wheat.
South American weather forecasts stay “steady as she goes” and do not offer any concern right now. Showers return to Argentina this weekend. The soy rally is overextended without a real South American weather issue in my opinion. Either corn rallies or beans fall would be my outlook.
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