This Week in Grain – AM Commentary 2/7

Good morning friends!

Corn (H17)  363’4  -‘2

Soybeans (H17) 1034’0  -2’0

Chi Wheat (H17)  421’0  -1’4

KC Wheat  (H17)  433’2   -2’4

Cotton (H17) 75.47   -.016

Good morning friends

Another slow overnight at the CBOT as prices bleed lower ahead of WASDE on Monday evening/Tuesday morning.  The market is lacking headlines right now, which puts the impetus on the specs to keep prices elevated.  It sounds like fund managers have little interest in buying here, and with a really long trade on the books who can blame them.  Cotton is in the same situation,prices in Dec 17 futures have filled the price gap from this summer but have not yet tested the highs above 74.00 on this run up.  I assume it will get tested.  Weather is favorable for South American crops. Brazil’s CONAB and the USDA will be out with their updated crop and stocks estimates on Thursday. ARC maintains that CBOT prices will continue to chop in a range until the weather focus shifts back to the N Hemisphere in a few weeks. Brazil’s soy demand is record large which is helping to absorb the crop and corn supplies remain unknown. FOB Corn in NOLA remains cheaper than Brazil which should buoy prices for now.

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Wheat prices are on the retreat again as we expected would happen with delivery approaching.  We have seen the “reflation” of many other commodities driven by fund money, wheat has seen some of that action.  But this is a time when it feels like the trade wants nothing to do with wheat.  I plan on jumping in to buy near the end of the month.

South American Crop Consultant Dr. Michael Cordonnier raised his Brazilian soybean crop peg 1 MMT to 104 MMT, citing “good” early yield reports. He has a neutral to slightly higher bias going forward, though he remains concerned about “continued wet weather and the potential impact on the crop.” He noted high-moisture soybeans have resulted in long lines at grain driers and there have been some reports of moldy beans. As of Friday, AgRural reported soybean harvest was 10% complete in Brazil, which is in line with year-ago and four points ahead of the five-year average. He left his corn crop peg at 86 MMT, with a neutral to higher bias.

For those hedging cotton. This is where trading/marketing your crop is really, really hard.  Its psychologically draining to come in and fight the trend everyday but its a fight we must be willing to make if we want to hedge properly.  I usually go by the addage “if it feels wrong to make the sale, its probably a good time to sell”.   I have found people are  wired to trade with recency bias.  In this case, cotton continues to rally but I am finding producers are less inclined to want to sell now than 2 months ago when the trend was less clear.  Its time to scratch that from your plan.  I sat down with many of cotton farmers a while back and planned to sell these levels, so sell we shall.  Maintain your short positions, if you are inclined to want to exit, a sale of the physical OR a replacement put is highly recommended.  I say this because I feel the burn as well, but we are record long and the seasonals turn south on cotton in a month or so. The managed money has re inflated this commodity trade pretty quickly, a lot of markets find themselves in speculative bubble territory, cotton is one of them.