Good morning friends!
Corn (H17) 370’2 +1’0
Soybeans (H17) 10300’0 +3’2
Chi Wheat (H17) 438’0 +2’0
KC Wheat (H17) 454’2 +2’0
Cotton (Z17) 74.35 +.16
CBOT markets opened slightly higher and have stayed that way through the balance of the session in a slow trade. Dec 17 cotton is up as well, pushing back into the mid 74’s after falling into the mid-73’s yesterday. The weakness of the last sessions is looking to break as the CBOT is trying to bounce ahead of the USDA’s Annual Outlook Forum that starts on Thursday in Washington DC. Corn and soybeans will be on the minds of new crop traders, but do not forget about cotton. That market might be the most exposed of all to a bearish number, given the net long OI. Corn and beans have retreated back to 200 day MA’s of late. I assume the forum will break us out of the recent consolidation range.
Looking closer at cotton acreage, it is expected to rise as I have mentioned. This is partially due to a more stable yield environment across the Southern Plains and partially due to the 20% run up in prices over the last year while corn and wheat are flat to lower. Personally, I know plenty of producers who look at HRW basis in N TX at $1.00 under futures and corn basis 20 under in some places and its a no brainer for those folks. Last year cotton acreage was just over 10 million. I think we could see it go up to 11 million but that might be a stretch. Lets assume we get a normal acreage jump to closer to 10.5 million acres, with normal abandonment and trend yields, 2017 US cotton production is estimated at 17.8 Mil Bales, vs. 17.0 Mil in 2016 and the highest since 2010. Ginning are no doubt higher than last year, but to keep end stocks from rising, exports of 14 Mil Bales will be needed 17/18, which if realized will the largest since 2010 and second largest on record. Either price must decline to clear the market and boost exports, or end stocks will go up one million bales from 5 to just over 6 million and stocks to use jumps 10%. . I understand the foreign markets are a factor here but note that world cotton stocks since 2011 have ranged from 75-112 Mil Bales, vs. 50-60 Mil in 2000-2010. It’s tough to be bullish cotton at these levels. Stay in your shorts folks, I understand its a cash burn right now but I just can not see how the fundamentals and money flow support a push into the 80’s at this time of the year. The tougher decision will be what to do with shorts if we break 70. I’m already losing sleep over that decision.
OK, now that we have touched on cotton expectations for Thursday, back to the CBOT. China’s corn and soymeal futures closed slightly lower last night. . Cash soymeal demand has slowed in domestic feed markets with most re-sellers citing expanding avian flu as the concern. Egypt is back in the market for world wheat for late March and early April shipment, most likely black sea orgin. Egypt has been paying up for the last few shipments, going back to Thanksgiving. The US has not received any business, which has been the norm for a while. To be very clear, I do not think the US will receive more business from anywhere unless our future delivery prices fall a bit. We are simply being low balled by the black sea.
Currently, US SRW is offered around 191 while the Ukraine, Russia and Romania are all offering in the high 160’s low -170’s. That is going to keep a lid on the may contract. I assume we see further US weakness into delivery. What US producers need is a problem from somewhere else, specifically the countries mentioned above. Until we find out what everyone has in the fields, I expect this rally’s highs to hold. I would be looking to buy July HRW for 4.50-4.60. Be patient until then.
I believe the outlooks from the Ag forum are on Friday. I think I had mentioned Thursday in previous reports. Reminder, CBOT markets have March options expire on Friday. Have a good trading day, until tomorrow.
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