Good morning friends
Corn (H17) 358’2 +’2
Soybeans (H17) 994’6 unch
Chi Wheat (H17) 426’2 +3’2
KC Wheat (H17) 436’0 +2’6
Cotton (H17) 73.74 -.25
Cotton markets are slightly lower on the ICE contract, while CBOT markets wheat and corn are slightly higher this morning. Soybean prices are flat after retest of 10.00 in the overnight last night. WASDE reports out on Thursday at 11 AM will headline the news schedule for the week. The Jan WASDE is a big one, we will get yield updates for corn, beans and cotton and we will get acreage updates for new crop wheat. We will also get CONAB reports on Tuesday with their latest bean/corn estimates. Be ready for volatility.
After a surge higher on last week’s open, cotton feels vulnerable to pull backs if WASDE comes out the way it has in November and December (higher stocks to use). We saw a jump in available deliverable stocks last week, which is telling us the market is getting a handle on the lateness of the harvest and the slow pace of ginning at the mills. Exports were solid last week, but they remain just 1% above where the USDA expects them to be at this point Net open interest remains large above 80 K contracts, while the total number of shorts in the spec category (7,927) fell to levels not seen since the run ups in price in ’13 and ’14. I expect Dec 17 cotton sees that gap filled at 73 before we see 63, but I would not get yourself surprised by a sharp move lower, the market is vulnerable.
At the CBOT, the week has started on a firm tone with wheat leading. This screams short covering/re-balance to me as foreign prices have not seen the move the US markets have. Needed rain looks to drop across N Brazil starting this upcoming weekend and continuing into next week. The NE areas of Brazil will not see as much, but some rain will fall. The rest of Brazil will enjoy near normal amounts of rainfall with an eventual drying trend for parts of C Argentina following several more rain chances this week. Argentine rainfall over the weekend brought back last week’s flooding concern and an additional .5-1.50” of rainfall this week will prevent any drying. However, for Brazil the forecast has improved slightly and points toward some crop improvement there in the week’s ahead. I would not expect CONAB to change the story, they should keep bean estimates high (above 100 MMT.
I like buying puts in cotton ahead of the report. I would also put orders in near 3.70 on any corn that needs to be moved on the March delivery. I remain split on soybeans. If you are long wheat, I would look to hedge those gains ahead of USDA. Maybe a 1×2 call spread or sell a covered call above the futures or option you own. I do not expect much bullish data from wheat.
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