Soybeans | The rains in Argentina are leading soybeans lower today and January is testing the $10.20 support level. We are going to find out if this rally in Soybeans since the beginning of October is supply or demand driven. If the rally was a supply concern than the recent rains should take beans lower below $10. If this has been more of a demand rally since October then I expect $10.20 to hold. If we close below $10.20 and start to head south, major support does not come into play until $9.80. Stay tuned!
My gut feeling is we are in the midst of a demand rally and the market needs soybeans priced high enough to encourage as many US soybean acres as possible. This South American crop is far from being made and US exports remain strong. If $10.20 holds today in January and we bounce off support, I like getting long futures and using a short dated put instead of a stop.
As for November 2017 soybeans (new crop) – farmers who already bought put spreads on 5% to 20% of 2017 production should sit tight and see this out. Farmers who are not hedged are a little behind the 8 ball with the new rains in Argentina. Hopefully Jan Soybeans holds $10.20 and November holds $10.10. If so we should get a chance to price in some hedges before the January USDA reports.
Cotton | March Cotton is breaking down today and we could be seeing the start of a reversal in trend. Cotton has been in a bull market since March. First we due to a spring/summer rally brought on by unfavorable weather. The second leg of the rally was due to the slow harvest of cotton in Texas (there is more cotton grown in the state of TX than all other US states combined). The slow harvest delayed the availability of deliverable grade cotton for the December new crop contract. Now that the industry is back on track it looks like we will have a good crop of cotton and we will have enough cotton for the March contract.
I like puts spread in the near months and I like selling the futures outright. A close today in March Cotton below 70 cents should also be signal for technical programs to either liquidate longs or initiate shorts. Managed money is estimated to be long 80K cotton contracts and a strong break below this trend line could cause a lot of long liquidation from the funds.
KC Wheat vs Chicago Wheat | The weather this weekend was not good for Hard Red Winter (HRW) wheat, also known as Kansas City Wheat. Some reports this morning thing the extreme cold temperatures likely caused some damage to about half of the US HRW wheat crop. We are long KC over Chicago in the July contracts from +2 cents (KC trading 2 cents over Chicago). We are now around $4.50 cents. A combination of an average soft red winter (SRW) wheat crop, aka Chicago wheat, and damage to the HRW crop (KC wheat) could eventually send this spread to +25 cents. KC wheat typically trades 30 cents to 60 cents over Chicago but has been trading about even (or lower) for over a year due to a lack of deliverable grade SRW wheat for the Chicago contract. We feel this imbalance in the wheat market will finally sort itself out with the new crop for winter wheat (July is the first new crop contract month for winter wheat).
July KC vs July Chicago Wheat
Try Turner’s Take Market Alert – for 30 Days
Turner’s Take Market Alert – Trial - Turner’s Take Market Alert includes Daily Updates and an Intraday Trade Recommendation service for Daniels Trading clients.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.