Good morning friends
Corn (H17) 358’0 -1’4
Soybeans (F17) 1037’6 +’2
Chi Wheat (H17) 408’6 -7’6
KC Wheat (H17) 407’0 -6’4
Cotton (H17) 71.32 +.32
Overnight price action was weak across the board in CBOT markets, with only cotton and bean oil higher on my screen this morning. Crude oil will start the week as the story in the commodity space. Front month WTI gapped open last night on a double header of good news. The first news event came out on Saturday when it was announced that non opec oil producing countries (Russia) and Saudi Arabia met in Vienna and agreed on a production cut (link to story). The second news came out of the President-elect’s camp, where the head of Exxon-Mobile, Rex Tillerson, is being floated as Secretary of State. The combination of both news leaks have crude up about 2.50 or 5% this morning. Front month WTI is trading at highs not seen since this summer.
The crude news obviously will help the bio diesel and ethanol sectors, but in the long run not the short run. Expect grain news flow this week to be dominated by outside influences after the WASDE report on Friday resulted in little to change the sentiment of the trade. The report changed little statistically or rhetorically. The outlook for both corn, soybean and cotton supplies are higher a year out than they are right now. In wheat, we look for a contraction of production but the foreign markets are stepping in for what we will not produce next year. That said, the short profile of the corn and wheat trades reflect as such. Soybean speculation remains near the higher side of historical ranges while cotton speculation is at a record long position right now. I feel very strongly that cotton prices need to either correct or trade sideways to allow the longs to regroup for a higher push. Maintain sales targets for 2016 production and hedges for 2017 cotton at this juncture.
Lastly, the federal reserve will meet this week and release what many expect to be their first rate hike of 2017 on Wednesday. This will be the first hike since last year at this time. The attention will shift very quickly to comments about expectations for 2017 rate hikes. The bond markets have been pounded in recent months, exacerbated by the Brexit and Trump elections. There is a lot more downside in my opinion, but I would be careful with a “sell the rumor buy the fact” mentality in the bonds. Commodity funds are short already in corn and wheat, “covering” could be bullish in these instances. If there was one thing I took away from Kevin Van Trump’s Ag Think Tank last week it was the upside being most susceptible to the unknown news event for wheat and corn with so much negativity priced in already. Soybeans remain a wildcard and cotton is already record long, be careful on the downside in those markets.
This week’s weather forecast features no rain for Argentina and S Brazil and really cold for the bulk of the mid-west. There is some rain in the forecast for Argentina next week, but not much. The SAM weather problems are still “fringe problems” right now, but the potential is there for production losses if things do not change over the next 30 days. Corn bulls need to keep this in their cap. The potential for a rally is great, but wheat remains an anchor. The opposite is the case for cotton.
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