Good morning friends!
Corn (K17) 364’2 +2’0
Soybeans (K17) 1006’0 +5’0
Chi Wheat (K17) 436’2 +5’6
KC Wheat (K17) 449’2 +6’6
Cotton (Z17) 75.26 +.23
CBOT markets are in a good mood as the FOMC meeting approaches at 1 pm today. The market odds for a rate hike are rather high, so if something other than that happens you can probably expect fireworks. On the margins, a rate hike would be bearish commodity markets as the costs associated with holding commodities via loan will go up. Kind of like a margin hike on the economy if you are comparing it to futures trading. I think the trade will be more interested in the presser Yellen will give after the announcement for ideas of when the next hike will come. She has been rather dovish in the past, any change will probably push prices lower and the dollar higher.
The AG news from yesterday came out of the corn markets. We heard early in the day yesterday that Mexico booked 120 MT of new crop corn purchases. Money talks and BS walks…I am very confident Mexico will be a big buyer of US ag products next year, regardless of how this NAFTA thing turns out. The second “news” event was a monster development in my eyes, even though the market seemed to shrug it off. This is still a rumor, but the word is that China bought 3 cargoes (approx 150,000 MT) from the PNW yesterday. It has been almost 4 years since the last Chinese corn purchase. While the market did not seem to care that much, it is a development that will shock the markets if global supply would tighten elsewhere. I do not think this spurs a monster rally now, but it is something the bulls out there should have in their cap.
Cotton markets are not going to miss out on any bullish party as the Dec 17 trades back above 75 cents again. If you are looking for evidence that this “correction” in the outside commodities markets is just that, look at cotton and look at copper. Both are slightly lower but have held major trend support and appear to be pushing higher. Chinese cotton auctions have remained strong, but that is a two sided story as well. The demand of cotton in China is obveously there given the success of the auctions, but there is also the outlook from bears that these supplies are coming from the Chinese and not the export markets. I look for cotton to swing with the stock market following the rate announcement. At this point I do not see much out there that will break the uptrend, but the fuel is there for a selloff given the record large spec position and the idea acreage will be 15% higher this year.
Egypt is seeking optional origin wheat for late April, and this is very likely the last batch of Egypt’s old crop demand. The last few Egyptian tenders have included monster purchases at good prices. These large purchases from Egypt in recent weeks have kept Black Sea and European exporters from being too aggressive with offers and have given wheat some lift. I doubt the US will be a part of Egypt’s results but Gulf HRW is competitive and that is why I would look to buy US HRW here. I recommended buying 460 or better a few days ago. A call or a call spread is acceptable, but futures are preferred. If you have old crop product around to move, buy the futures and sell a couple of OTM calls in the July KC wheat. The calls will limit profit potential on the futures position but if you own physical it will help with the downside risk. The crop reports from the HRW region has shown a lot of poor wheat. I think we could see harvested acreage really down. The foreign markets will dictate how high we can go as we will lose competitiveness on rallies, but I think the rallies come none the less.
Beans will be observant of NOPA crush that will be released at 11 am central today. Crush is expected in a range of 146-147 Mil Bu, slightly above February of a year ago. It’s somewhat important for crush in the remaining months of the 16/17 crop year to exceed year-ago levels following the USDA’s hike in annual crush in its March WASDE. NOPA member crush reports have been supportive in recent months.
The major forecasting models still forecast rain for some of the HRW areas, but less moisture is seen across the parched regions of Kansas and Oklahoma. Brazilian rains will continue into April 1, at this point there is nothing I see to indicate the hikes in production will be reversed. Corn is still sensitive to the weather though, so be careful getting to excited about production.
I am a buyer of KC wheat and remain bearish hogs going into the quarterly pig number at the end of the month. I am long April Hogs vs June and outright short October. I feel the correction in these commodities have run their course, but we probably need to get through the massive amount of data at the end of March before making another charge higher.If you are in April SH bean puts, I would roll to May via put spread. Call the desk if you have any questions on that.
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