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This Week in Grain- 2/2 AM Commentaray

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This Week In Grain (T.W.I.G)Good morning friends

Corn (H17)  359’4   -‘2

Soybeans (H17)   1022’0   -2’4

Chi Wheat (H17) 418’2   -2’4

KC Wheat  (H17) 426’0  -3’4

Cotton (H17)    75.61   +.67

 CBOT markets are slightly lower after the dynamite close yesterday in all row crops.  The rally came on the back of bullish macro factors, thanks to the skirmish in the Ukraine/Russian area and the dovish fed. The corn and wheat markets feel much more awake at this point than they have for a while. Given the run up we have seen in leading markets like copper and cotton, I think corn is going to give those with corn something to think about in the weeks ahead.  The problem in the case of corn and wheat, physical sales are no doubt coming to market.
South American weather forecasts have to be monitored with heavy rains slated for N Brazil in the next 10-14 days. The forecast for Argentina and S Brazil is favorable with a nice mixture of rainfall and sunshine offered into mid February. South American weather leans slightly bearish this AM. Algeria booked 585,000 MTs of world wheat at a fob price of $192-196/MTs. A retest of recent CBOT grain highs is expected with soybeans to lag amid improved S American weather. Our bias remains one to sell sharp rallies.
Cotton’s impressive march to the summer highs continues as Dec is now steadily above 72 cents and the front month March is now is parabolic territory and testing the waters near the (potential) double top just below 78.00.  I am sure we will see some attempted shorting here, but the bottom line is this is where producers like your selves (or speculators) need to take a shot on the short side, especially in new crop production (73.50 is my price).  Now, if you are inclined to speculate I think I would try one of two strategies.
1) A put purchase- I know, its not a very sexy play but its fixed risk and safe.  March options expire 1 week from tomorrow, so you could try a cheap option and hope we really back off after testing these highs.  The problem with that is the time is pretty short and then you are left with another decision one week from now.  If thats your speed, the March 76 put is going for about 85 ticks or just under 450 dollars. If you would rather go to May, you can get a 74 put (futures at 77) for just under 2.00 or $1000.
2) Sell July futures and Buy Dec 17 futures- This is the aggressive play.  Were obviously in a short term squeeze here and prices are working to get supply to the market.  How high could this go?  I don’t know for sure, high.  But again, given the amount of spec longs in this position I would be very inclined to think this high holds.  What I might do is sell the futures spread and use the high on the May as a stop on close.  If we take out the high on the close in the March/May or July, take the spread off.
These are dangerous markets, so be careful.  But the opportunity is at hand.  DON’T BE SCARED!  Think about your crop, and the liquidity risks as well. Regardless, we are recommending marketing another small amount of Dec 2017 cotton at 73.50. Put option traders should look at buying the Dec 72.00 put for 4 to 4.5 cents.  That gives you a floor in cotton for 68 cents through the end of the year.
Call the desk with questions.
Hedge ideas:
– Buy July corn- Sell Dec Corn (see Turner’s Take)- FILLED NEAR 12 CENTS
– Buy March short dated Bean puts to protect crop insurance prices- HOLD THROUGH EXPIRATION
– Sold March corn near 370 –REMAIN SHORT THROUGH FIRST NOTICE.  WE WILL LOOK TO GET LONG AT THE END OF FEBRUARY
– Sell March KC wheat, look to re-own July via calls or collars-
– Hedge Dec 17 cotton at 70-71 cents.
–Hedge another portion of Dec 2017 cotton production at 73.50.
-Buy Dec 17 cotton 73 cent puts for 4.50
Spec Recommendation:
– Sold April Hogs between 68.70
– Sold June Hogs at 77.00
– Sold October Hogs- 67.00
–BUY FEB/SELL APRIL CATTLE AT 1.10 – ENTER PROFIT TARGET AT 2.70
– NEW Spread: Short April Cattle/ Buy August Cattle.  Risk a close above the trend high near 17.00 on a close. I would look to get in on a rally up to the 14.75 area.  Total risk on a 1 lot would be around 1,000 dollars. (no fill yet)
UPDATES ARE IN BOLD. Please call or email if you have any questions.

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About John Payne

John Payne is a Senior Futures & Options Broker and Market Strategist with Daniels Trading. He is the publisher of the grain focused newsletter called This Week in Grain, along with being a co-editor of Andy Daniels’s newsletter, Grain Analyst. He has been working as a series 3 registered broker since 2008.

John graduated from the University of Iowa with a degree in economics. After school, John embarked on a 4 year career with the United States Navy. It was during two tours in Iraq and the Persian Gulf where John realized how important commodities are to the survival of society as we know it. It was this understanding that brought about John’s curiosity in commodities. Upon his honorable discharge in 2007, John’s intense interest in the world of commodities inspired him to move to Chicago and pursue his passion in a career in the futures arena.

After a three year position with a managed futures firm specialized in livestock trading, he was given the opportunity to join the team at Daniels Trading. Being in the business and seeing how other IB’s operated, it was the integrity and straightforward approach of the Daniels management team and brokers that attracted him to make the move. Since joining Daniels, John has broadened his fundamental and technical analysis of the markets even further. John has been writing his newsletter This Week in Grain under the Daniels banner since 2011.

Working in high pressure industries like the military and capital markets, John has learned the value of preparation in times of stress. He believes that instilling within his clients the value of a good plan and a cool head for dealing with the day to day swings of commodity markets. He treats every client as a teammate, understanding that his job is to help clients achieve their goals, whatever they may be.

John is a proud supporter of the Iraq and Afghanistan Veterans of America, the Veterans of Foreign Wars and the National Corn Growers Association. When he is not working, he enjoys athletics of all kinds and spending time with his wife and their two kids.

John’s commentary is featured in the following publications:

* All Ag Radio – Sirius Channel 80
* AM 880 KRVN – Lexington, Nebraska
* RFD TV
* Wall Street Journal
* Barron’s
* China News Daily (English version)