Good morning friends
Corn (H17) 356’4 +’6
Soybeans (H17) 998’6 +3’6
Chi Wheat (H17) 407’0 +’4
KC Wheat (H17) 416’2 +2’2
Cotton (H17) 71.85 +.07
It was a positive start to the year for cotton markets as a positive tilt to the world economic picture has many believing cotton consumption is on the rise. March cotton made a run at 72 cents in the overnight while Dec 17 looks to entrench itself above 70. The charts and the story all look very positive, but from where I sit the fundamentals (USDA data) and the market participation factors (record long OI) have me concerned longer term. The short term trend looks higher as the specs are active. This could give sellers a chance at those price gaps (near 73 in March and Dec).
Technically, it feels like cotton needs to trade into those levels and cause shorts to run further. We are only 1 month and some change away from the March option expiration, you may want to look to roll sooner rather than later to take advantage of the carry and the remaining time value. The 5, 15 and 30 year seasonals are all positive over 1st quarter of the year (via MRCI) which should keep prices above the 100 day EMA for a while. The steep participation rate by the bulls here is concerning, but without bearish data we probably do not see the break quite yet. This is a good place to begin getting hedged up though for the break that should come when acreage is thrown around.
CBOT markets were mixed in the over night with March beans looking to test 10.00 and corn 3.60. Soybeans have been the whipping post of the spread markets the last few days as we could see folks buying corn and wheat against soy. These appear to be new positions. Wheat price action should be interesting with KC ratings falling last night again, moving G/E ratings for Kansas 9% below where they were in November. There is little hope here for a major wheat rally, other than the monster short fund position that is camped out in Chicago Wheat. I look for that short position to get tested in early 2017 as weather continues to worry traders both here and in Europe.
Flooding concerns are emerging in Argentina more rainfall observed overnight. The worst of the flooding is centered in Santa Fe, which is a decent sized ag state. Keep in mind, were still waiting for these areas to get planted. The December WASDE forecast of 57.0 MMTs appears to be in doubt right now. The forecast offers more rain for Argentina over the next 10 days. The Brazilian weather forecast is drier this AM with less rain forecast for Mato Grosso, Goias, Minas Gerais, and Bahia. So far, the bulk of the soybean and corn belt in Brazil looks pretty good from where I sit. But its still really early and there is a lot of risk on the table. Soybeans are a market that almost every adviser I read would tell you to forward contract, this scares the heck out of me.
Today we get Fed minutes from the last rate hike meeting. The market will be keen to learn how aggressive the governors will be when deciding future rate hikes. The DX is down slightly from yesterday’s close, back below 103.
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