Good morning friends
Corn (H17) 359’4 -‘6
Soybeans (H17) 1011’0 -4’2
Chi Wheat (H17) 418’6 -‘2
KC Wheat (H17) 441’4 -‘4
Cotton (H17) 72.20 +.60
The big upday we saw from cotton yesterday is seeing follow thru this morning as March futures get over 75 and Dec 17 futures trade above 72 for the first time since last summer. Chart gaps have been taken out on the front month contracts but still remain in Dec 17.I understand the stories out of China and India remaining bullish, but there is a narrative floating around right now about 2017 acreage and how prices need to encourage cotton planting. I completely disagree with this narrative. Acreage is going up, its just by how much. Regardless, arguing with the market is fruitless. Cotton length is at record OI levels again and hedging should be encouraged. If you can make money with 66-68 cent cotton, you can put a floor in right now at those levels and keep your upside open. July puts are my recommendation for guys who want to lock these levels in via puts. Roll to the Dec when the liquidity gets better. I do not foresee WASDE providing bullish winds, but we may see a push a few cents higher in march to test the summer highs.
The CBOT markets are flat in the overnight but look poised to follow thru today, especially wheat. Lower than expected monthly ratings for Kansas a weaker dollar and ongoing fund short covering could send KC Wheat futures toward 440. Additional downgrades can be expected as were not expecting much precip over the next few weeks. There is also a similarly dry pattern has been ongoing in W Europe, where there’s also no meaningful rain in the forecast through late January. Like I mentioned above, a push to 4.40 may be in the cards but anything above that will require more than weather rumors. Basis is not supporting this move. Record carryover and a lack of global demand growth hurt the bullish argument. That said, cotton is rallying on an idea, wheat can do the same. No reason to be bearish here. We need to see foreign offers go higher, at this point they have not moved in Russia.
Today is a big day in corn. Technical buyers could jump in on a break above 3.60 and push price all the way to 3.70 front month. I would recommend pricing some old crop corn at 3.70 if you need to move it before March delivery (end of Feb). Acreage is a function of new crop corn prices, any moves above 4.00 at this time may encourage more corn acres. Corn OI remains to the short side, so rallies are possible but they will be quick and sharp. Basis is not following this move, so I think we run out of steam as DEC 17 pushes on 4.00 (currently trades at 3.85).
South American weather through Feb/Mar will be the most important determinant of price longer term for corn. I’ll be keeping a close eye on Argentina and Brazil. It looks like drought will persist through the winter months across NE Brazil, which accounts of 10-12% of first-crop corn and 8- 10% of Brazil’s Safrinha crop. Flooding in Argentina is hurting the late planted crop there.
Shorts need to be patient here, cotton OI longs represent a record long % of the legnth here. Commercials could be buying this but once the Gins catch up we should see prices fall.
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