Good morning friends!
Corn (H17) 373’2 -1’2
Soybeans (H17) 1054’0 -5’0
Chi Wheat (H17) 445’6 -3’2
KC Wheat (H17) 458’6 -1’6
Cotton (H17) 76.58 +1.03
After being on US Farm Report and Ag Day all of last week, I see we have some new readers! Thanks to everyone for clicking “subscribe” and following along with me as we tackle these markets together. If this is your first week following, I want to set a few expectations.
- -This is the weekly preview. Every Monday morning the goal is to set the table for the week ahead by ensuring everyone knows about the potential events that could move the market
- – This is a fundamentally focused newsletter, covering supply and demand driven events within the 4 major row crop markets (corn, beans, wheat and cotton)
- -I typically write 4 to 5 times per week. These are mostly in the morning but occasionally in the afternoon if the news flow would dictate
- -I will publish trade recommendations but I would rather every recommendation customization to each client. No two producers/traders are the same, I do not thing one trade is good for everyone.
- -COT data is one of our main data points, learn more about it here.
Thanks again for reading, I appreciate the interest. Don’t be shy, give me a call or email to introduce yourself!
The big economic news last week came from China with their import and export data blowing away expectations as they begin 2017. January exports were up 7.9% y/y in dollar terms vs. +3.1% expected, while imports were up +16.7% y/y in dollar terms vs. +10.0% expected. The Jan trade surplus rose to $51.35 billion vs. expectations of $50.0 billion. Some of the highlights included soybean imports of 7.66MMT, up 35% y/y, coal imports at 24.91MMT, up 64% y/y, iron ore imports of 92.00MMT, up 12% y/y and crude oil imports of 34.03MMT, up 28% y/y. Chinese commodity futures must have liked the data as well as Iron Ore futures on the Dalian exchange rose by 3.81% to new contract highs on Friday. The spot month is at the highest level since July 2014. I look at Chinese and Indian buying as the reason why these markets have moved like they have in the last quarter.
This week is going to be slow with USDA data, as next big event is the USDA ag forum taking place in the middle of next week. It will be during one of the morning presentations when they usually drop the acreage data for next year. Keep in mind this is just the starting point for acreage but it is very important for where the trade thinks the carryout (grain left over at the end of the marketing year) could go by the close of biz in September. We will continue to follow along with South American production estimates in the short term, and keep eyes on the export reports for signs of a sharp change somewhere. Corn, beans and wheat had great export numbers last week while the cotton slowed somewhat. On the macro side of things, the week is chock full of USDA data all week as the S&P 500 makes new all time highs. We get a speech from Janet Yellen on Tuesday and a congressional testimony on Wednesday. The currency markets, which are another big factor for price, will be paying attention. We are half way through Q1 of 2017, it has been a heck of a quarter for almost all commodity markets.
Cotton markets appear to have broken out to the upside with Dec 17 cotton trading above its summer highs for the first time, at 74.40. Cotton is trading with net OI above 100,000 contracts for the first time in the data I have going back to 2006. I would assume it has never been this high. COT is a decision driver for me and has me hedged up at this point for some of 2017 new crop production. The spike above the recent highs is really concerning for my shorts, but I just can not believe this holds longer term. The wagon is so full of momentum longs its not even funny, stay short however possible the new crop production.
For soybeans, harvest progress in Mato Grosso was reported 46% complete versus 25% last year. As harvest continues, we expect the offers to fall from the Brazillian ports, it has not happened yet as Brazillian offers are above US throgh July, which is really weird. There’s a total 6 MMTs that are now estimated to ship in February versus 4 MMTs a year ago. COT data from Tuesday shows a slight contraction in bean OI, but I assume after the late week run up “longs” are back to the recent highs. It is impressive to see beans perform in the face of bearish supply data like we got from CONAB last week regarding new crop production. China soymeal prices continued to rise to start the week. Dalian soymeal futures contract rose 27 yuan to close at 3,002 Yuan/MT, the highest settlement in 6 months. Cash meal demand remained active from livestock producers with solid trade volumes reported. The Chinese meal demand appears to be the main driver right now.
On Sunday night, March corn pulled back slightly from 6 month highs made on Friday, COT report on Friday showed spec money with the highest net long corn position since last July, this is tallied before the late week run up so I assume its even higher. Argentinian corn fob basis continues to fall and is now offered slightly below Gulf beginning in March. Argentina’s falling cash price suggests that additional weakness can be expected into mid/late March and that US corn may lose competitiveness by then. This is why watching the exports is really important over the next few weeks. Also note that Gulf corn early next week will be offered at $169-172/MT for Mar/Apr, near parity with Black Sea feed wheat. While I think the market could take March futures through the front month gap near 385, I do not foresee much more than that. Sell March deliveries before the last week in February, you do not want to find yourself in the group that is forced to make a decision by the last trading day of the month as basis contracts dictate.
Wheat futures pulled back last night as well after rallying like corn to a high not seen since last June. Russia is the market to watch as Black sea prices continue to rally. Russian wheat in dollars rose further. Russian spot fob offers are seen around $189 per metric ton, which is comparable to $4.50 KC wheat per bushel. US farmers will be weather watching as needed rain will fall this week across the Kansas. Did I mention it was almost 90 degrees in SW Kansas over the weekend! Wheat could creep out of dormancy there, we will be on the lookout for drastic drops in temps in longer term forecasts. The story in wheat is there, as are the shorts who can cover but the foreign wheat markets need to jump for US values to continue to rise.
Have a great week everyone, let me know if you have any questions.
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