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
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